FLORIDA REAL ESTATE

SALES ASSOCIATE
POST-LICENSE COURSE
4TH EDITION
Copyright © 2023 by Reicon Publishing, LLC. All rights reserved.

ISBN 978-1-949118-29-2

This material may not be reproduced in any form or by any means, electronic or mechanical,
including photocopying, recording, or by any information storage and retrieval system or
used for teaching purposes without the express, written permission of Reicon Publishing,
LLC.

Printed in the United States of America

This material is designed to provide accurate and authoritative information in regard to the
subject matter covered. It is provided to students of Gold Coast School of Real Estate with
the understanding that the school and its employees are not engaged in rendering legal,
accounting, or other professional services. If legal advice or other expert assistance is
required, the services of a competent professional should be sought.

References to Florida statutes and rules of the Florida Real Estate Commission, Florida
Real Estate Appraisal Board, and the Florida Administrative Code are included in this text
between brackets indicating the appropriate statute or rule.
 PREFACE
Congratulations on attaining your Florida real estate license, and selecting Gold Coast
as your school of choice to renew your license. Gold Coast is Florida’s leading real estate,
insurance, and construction school, and has helped hundreds of thousands of students like
you since 1970.
You worked hard to get your license. Florida law requires that you complete the 45-hour
course and pay your renewal fees prior to your license expiration date. Failure to do so will
render your license void. Don’t take that chance. We highly recommend that you complete
the 45-hour course well in advance of your license renewal date.
While your pre-license sales associate course focused heavily on passing the end of
course and state exams, the 45-hour post-license course is intended to be more of an
application oriented course. You should recognize many of the concepts from your pre-
license course, but this course will cover the concepts from an application or real life point of
view.
This course does not require that you pass a state examination, but it does require that
you pass an end-of-course examination. All of the concepts covered on your end-of-course
examination are covered throughout the practice questions in the course. Please take the
time to read the book and answer all of the questions. You must obtain a passing grade of
75% on the end-of-course exam to complete the course.
This book is intended to serve as an educational resource. It is not intended as a
substitute or replacement for the rules or statutes of the state of Florida. The authors do not
intend to give legal or accounting advice. If you are involved in a situation or transaction that
requires a legal or accounting opinion, we recommend that you seek the advice of a
properly licensed attorney, accountant, or professional.
This edition of the book is the culmination of the efforts of many people over a number of
years. Gold Coast would like to recognize and thank the following people for their input, hard
work, and dedication: Wayne Hasse, Melodee Ashby, Tim Haines, Jack Bennett, Barb
Byrne, Mike Byrne, Debby Hancock, and Toni Golden.
Once again, thank you for choosing Gold Coast. All of us wish you the best with your
real estate career.

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 TABLE OF CONTENTS

Chapter 1 Real Estate as a Career .................................... 1

Chapter 2 Real Estate Laws and Rules ........................... 29
Chapter 3 Evaluating and Pricing Property ...................... 51
Chapter 4 Working with Sellers ........................................ 77
Chapter 5 Financing Programs ....................................... 113
Chapter 6 Working with Buyers ....................................... 153
Chapter 7 Basic Residential Product Knowledge ........... 189
Chapter 8 Fair Housing Laws ......................................... 211
Chapter 9 Closing Real Estate Transactions ................. 231
Chapter 10 Foreclosures, Short Sales, and Auctions ...... 269
Chapter 11 Condos, Coops, and Timeshares ................... 285
Chapter 12 Real Estate Investing and Taxation ................ 301
Chapter 13 Becoming a Broker or Manager...................... 327
Real Estate Forms .............................................................. 347
Answer Key ....................................................................... 399
Index ....................................................................... 403

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CHAPTER

REAL ESTATE AS A CAREER

OVERVIEW Real estate is a truly dynamic industry with numerous
opportunities and professional specialties for the practitioner. “Under
all is the land,” says the preamble to the REALTOR® code of ethics.
It’s easy for real estate professionals to forget that they deal in what
is seen by most people as one of the most valuable commodities on
earth - land upon which all else is built. Real estate professionals are
privileged to help people realize the true American dream of home
ownership on a daily basis.
The opportunities in real estate are endless and the future looks
bright. Not only does Florida have a booming population to work
with, but people from all over the world come to Florida daily to buy
and sell real estate. As licensed real estate professionals, we are in
an enviable position to benefit directly from this dynamic real estate
market. Everyone needs to live somewhere, work somewhere, and
shop somewhere. The potential for success in Florida real estate is
truly unlimited.
This chapter will provide information about the vast array of
specializations available in this field, discuss the role that education
and technology play in a real estate career, and offer tips for
planning your real estate career.

OBJECTIVES After completing this chapter, you should be able to do all of the
following:

• Identify various specializations available to real estate

professionals
• Know the definition for a residential sales transaction
• Identify types of professional organizations available to real
estate licensees
• Know the purpose of the NAR Code of Ethics
• Explain the skills necessary for a successful real estate
career
• Know the key technological tools for a successful business
• Identify important elements in planning your business

Reicon Publishing, LLC 1

 2 Chapter 1

1 SELECTING A SPECIALIZATION WITHIN THE REAL ESTATE PROFESSION

2
3 The real estate profession offers a wide variety of choices of activities in which licensees
4 may specialize. These choices are either directly related to a specific type of real estate or
5 relate to support services that real estate professionals provide to the general public. The
6 following are some examples of specialization that illustrate the wide variety of opportunities
7 in the real estate profession.
8
9 Residential Sales or Rentals
10
11 Residential sales or rentals can provide a rewarding career for new or experienced real
12 estate professionals. The overwhelming majority of real estate licensees are involved in
13 residential sales.
14 Many licensees will concentrate on one type or style of property or on one particular
15 neighborhood, a practice called farming. Finding and specializing in a particular
16 neighborhood or type of property is considered one of the best ways to succeed in
17 residential sales. People buy from people they trust. Farming builds knowledge and
18 knowledge builds trust. As a new licensee, farming should be your initial priority and activity.
19 A residential transaction is defined in F.S. 475.278(5)(a) as the sale of any:
20
21 • Improved residential property of four or fewer units, including condominium units
22 • Unimproved property intended for four or fewer units
23 • Agricultural properties of 10 acres or less
24 • Leases with options to purchase all or a portion of improved property of four or fewer
25 residential units
26 • Dispositions of business interests for property of four or fewer residential units
27
28 Commercial Sales or Leasing
29
30 Commercial properties include apartment buildings, strip malls, office space, and
31 shopping centers. Real estate licensees who specialize in commercial real estate must have
32 extensive knowledge of business property. They must be capable of analyzing the past and
33 future potential income derived from investment property.
34 Commercial real estate practitioners must also have a basic knowledge of tax laws that
35 affect income earned from commercial property as well as the tax consequences of buying
36 and selling investment property.
37
38 Industrial Sales or Leasing
39
40 Industrial properties include warehouses and manufacturing facilities. Industrial sales
41 and leasing generally involve user/owners, rather than investors. Industrial real estate
42 practitioners seek to locate properties that meet the future owner's requirements. Knowledge
43 concerning government regulations of land use, environmental considerations,
44 transportation, labor costs, and utility charges are all important when attempting to meet the
45 requirements of such purchasers.
46
47 Timeshare/Vacation Ownership Sales
48
49 A timeshare property is a condominium unit that is subdivided into ownership time
50 periods. The two types of timeshare ownership are the point system and right-to-use. With
51 numerous destination and vacation properties in Florida, a large number of licensees are
52 employed in the area of timeshare or vacation ownership sales. Sales leads in this area are
53 typically provided to the associate by the employer.
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 Real Estate as a Career 3

1 Agricultural Sales
2
3 As the name implies, agricultural properties are generally rural areas used for growing of
4 crops or the rearing of animals to provide food or other products. Two common
5 characteristics of agricultural sales are large tracts of land and significant sums of money.
6 Real estate professionals involved in agricultural sales must be able to analyze the
7 profitability of current agricultural uses and estimate the potential of properties under
8 consideration.
9
10 Property Management
11
12 Managing income-producing properties for owners has grown over the years and has
13 become a major service offered by real estate professionals. Owners who buy income
14 property as investments and depend on professionals to manage them are called absentee
15 owners.
16 Property management differs from simply being a rental agent. A rental agent merely
17 finds tenants for properties and collects a fee for the service, but usually does not manage
18 the property.
19 A property manager's responsibilities include:
20
21 • Locating tenants
22 • Collecting rents
23 • Handling the payment of taxes, insurance, and other operating expenses
24 • Maintaining records
25 • Scheduling maintenance
26
27 Ultimately, the function of good property management is to maximize the profitability of
28 the investment for the owner.
29 Typically, compensation to property managers is based on a percentage of the rents
30 collected from tenants. Percentage compensation is beneficial to both the owner and the
31 manager.
32
33 Business Brokerage
34
35 A real estate professional who specializes in business brokerage, or the listing and sale
36 of businesses, must be able to estimate the value of an entire business, which is being
37 offered for sale or purchase, separate from the value of any building or real estate. Valuing a
38 business requires an analysis of financial statements and balance sheets. The value of a
39 business, called going concern value, includes its income, tangible and intangible assets,
40 and goodwill, in addition to the value of the real property. Goodwill is the value of the name
41 or reputation of the business in the marketplace. If the sale of a business involves the
42 transfer of ownership of shares of stock, a real estate licensee would also be required to
43 have a securities license.
44
45 Appraising
46
47 Appraising is the process of developing an opinion of value of real property. An
48 appraiser conducts an independent, impartial, objective, and defensible analysis based on
49 research and data pertaining to the value of a specified real property. Appraisal fees are
50 based on the time, effort, and expense involved for completion of the assignment, not on the
51 value of the property.

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1 An appraisal may be required in a variety of situations. Lenders may require an appraisal

2 to determine whether the value of property being used as collateral for a loan is adequate.
3 Appraisals may also be required in connection with federal income tax claims, federal estate
4 taxes, protesting real estate tax assessments, eminent domain, investment planning,
5 insurance claims, and in many other circumstances.
6 An appraisal that is used in a federally related transaction must be performed by an
7 appraiser who is registered, licensed, or certified under Part II of F.S. 475, which is
8 administered by the Florida Real Estate Appraisal Board (FREAB). A federally related
9 transaction is one in which a loan is made by a federally regulated lending institution that
10 uses real property. All appraisals, whether performed by a licensed appraiser or a real
11 estate licensee, must be developed and reported in conformity with the Uniform Standards
12 of Professional Appraisal Practice (USPAP).
13 Real estate licensees typically prepare a comparative market analysis, or CMA, which is
14 a value estimate based on recent sales or listings of similar properties in the same
15 neighborhood. A CMA uses many of the concepts used in an appraisal. However, a CMA is
16 not an appraisal. Real estate licensees may perform an appraisal under the real estate
17 license law if the appraisal will not be used in a federally regulated transaction. Refer to
18 Chapter 3 for information on selecting comparable properties.
19
20 Counseling
21
22 Real estate counselors give advice to consumers about property. They are the experts,
23 whom others seek when they want answers to real estate questions about such things as
24 avoiding mortgage foreclosure, dealing with predatory lending, handling rental default,
25 finding suitable income opportunities, or getting a reverse mortgage.
26 Counseling is a highly specialized service and requires a greater level of knowledge and
27 experience than any other facet of the real estate profession. Counselors must not only have
28 a superior knowledge of real estate investment but must also have detailed knowledge of
29 alternative investments and strategies.
30
31 PROFESSIONAL ORGANIZATIONS
32
33 Belonging to a trade association can add credibility to you as a real estate professional,
34 as well as provide you with a host of benefits. In addition to educational opportunities, these
35 organizations offer access to tools such as downloadable forms, opportunities to network
36 with other real estate professionals, and, in some cases, access to an online multiple listing
37 service (MLS) system.
38 Professional organizations are also the first-place members look to find the latest
39 changes and trends in the real estate industry. Associations exist at the national, state, and
40 local levels.
41
42 National Association of REALTORS®
43
44 The National Association of REALTORS (NAR) is
45 the largest and most prestigious real estate organization
46 in the world. NAR works for legislation that is favorable to the industry and it enforces
47 professional standards of conduct through its Code of Ethics. Only members of NAR and its
48 state divisions may use the trademark of REALTOR when presenting themselves to the
49 public.
50 NAR requires its members to take a mandatory ethics course every four years. Failure
51 to take the course results in suspension from the organization until the training has been
52 completed.

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 Real Estate as a Career 5

1 The core purpose of the NAR is to help its members become more profitable and
2 successful. It offers extensive information and market studies concerning the real estate
3 industry and is the largest resource for education, technology, real estate and politics,
4 member benefits, networking and consumer research, just to name a few.
5
6 For more information on NAR, please visit
7 www.realtor.org.
8
9 Florida Association of REALTORS®
10
11 The Florida Association of REALTORS (FAR) is the largest
12 trade association in the state. FAR does all its business as
13 Florida REALTORS.
14 Members can take advantage of a host of membership
15 benefits, including business contacts, networking opportunities, educational offerings,
16 research and legislative representation, discount programs, online forms, and technology
17 services.
18 Florida REALTORS is one of the number one resources for support and information in a
19 licensee’s real estate business. This organization offers complete access to all of the
20 necessary real estate forms, help with technology, legal advice, Florida market studies,
21 educational tools and services, and much more.
22
23 For more information on FAR, please visit
24 www.floridarealtors.org.
25
26
27 Local Association of REALTORS
28
29 Many real estate licensees choose to join local boards or associations of REALTORS.
30 Joining a local association also gives the licensee membership in FAR, as well as NAR. If a
31 broker is a member, all sales associates must also join.
32 Local REALTOR associations provide access to the multiple listing service (MLS), which
33 is a major tool in the success of a real estate business. In addition, it affords unlimited
34 networking possibilities, specialty education, local market research, technology, websites,
35 school information, code of ethics enforcement and arbitration. These are just some of the
36 many benefits of belonging to the local REALTOR Association.
37
38 CODE OF ETHICS
39
40 High ethical standards in real estate are very important – more important than in some
41 other transaction in which the consumer may be more familiar with the service being
42 performed. It’s critical that real estate licensees act in the best interest of both the client and
43 any third parties to a transaction.
44 Ethics are not the same as laws. Laws are put in place to maintain order in society by
45 setting minimum standards for acceptable behavior with penalties for noncompliance. Ethics
46 are standards of moral conduct with respect to what is considered right and wrong with
47 certain actions. An action can be legal, but unethical. Ethics tend to hold people accountable
48 to higher standards than laws. Good ethical practices have to do with trustworthiness,
49 honesty, and competence.
50 The first Code of Ethics was adopted by the National Association of Real Estate
51 Exchanges in 1913 to establish professional standards of conduct in the real estate
52 profession. The National Association of Real Estate Exchanges was renamed as the

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 6 Chapter 1

1 National Association of Real Estate Boards (NAREB) in 1916 and then became the National
2 Association of REALTORS (NAR) in 1972.
3 REALTORS were among the first of professions to adopt a professional code of ethics
4 for their business practices after those of medicine, engineering, and law. The code is a
5 commitment to professionalism.
6 NAR members follow a very strict code of ethics. The REALTOR Code of Ethics holds
7 members of local Associations of REALTORS to even higher standards than the law
8 requires. The formal Code of Ethics and Standards of Practice set forth by NAR calls for
9 professionals to observe the “Golden Rule” (do to others as you would have others do to
10 you) and to conduct themselves and their real estate business in accordance with certain
11 standards of practice. These standards of practice are contained in seventeen articles that
12 spell out licensee’s duties to the clients, public, and other real estate licensees. They
13 encompass all real estate-related activities and transactions whether conducted in person,
14 electronically, or through any other means.
15
16
To view the Code of Ethics, please visit the NAR website:
17
www.realtor.org/code-of-ethics
18
19
20 A few of these duties are summarized below. Refer to the Code of Ethics1 for details.
21
22 1. Duties to clients and customers (Articles 1 through 9)
23 • Do not deliberately provide misleading information
24 • Represent both parties in the same transaction only after full disclosure and with
25 informed consent of both parties
26 • Submit all offers and counteroffers objectively and quickly
27 • Maintain the obligation to preserve confidential information during and following
28 the termination of the client relationship
29 • Avoid exaggeration, misrepresentation, or concealment of pertinent facts relating
30 to the property or the transaction
31 • Cooperate with other brokers except when cooperation is not in the client’s best
32 interest
33 • Inform sellers or purchasers of the licensee’s own interest in a property or any
34 suggested product or service
35 • Do not accept any commission, rebate, or profit on expenditures made for the
36 client without the client’s knowledge and consent
37 • Do not accept compensation from more than one party, even if permitted by law,
38 without disclosure and informed consent of all parties
39 • Keep a special account in an appropriate financial institution, separate from
40 personal funds for monies related to real estate transactions
41 • Provide copies of all agreements to each party
42
43 2. Duties to the public in general (Articles 10 through 14)
44 • Provide equal, non-discriminatory services to all persons
45 • Do not volunteer information regarding the racial, religious, or ethnic composition
46 of any neighborhood
47 • When not involved in a transaction, a licensee may provide necessary
48 demographic information related to a property that is obtained from a disclosed,
49 recognized, reliable, independent and impartial source
50 • Refrain from providing professional services outside the licensee’s field of
51 expertise

1
Code of Ethics and Standards of Practice of the National Association of REALTORS, Effective January 1, 2014

Florida Real Estate Sales Associate Post-License Course Reicon Publishing, LLC
 Real Estate as a Career 7

1 • Be honest and truthful in real estate communications, advertising, marketing, and

2 other representations
3 • Clearly identify the licensee’s status as a real estate professional in all forms of
4 communication and advertising
5 • Do not participate in activities that might constitute the practice of law
6
7 3. Duties to other real estate licensees (Articles 15 through 17)
8 • Do not make false or misleading statements about other real estate
9 professionals, their businesses, or their business practices
10 • Do not take any action inconsistent with exclusive representation or other
11 relationship agreements that other licensees have with clients
12 • Mediate or arbitrate any disputes with other licensees
13
14 REALTORS engage in many specialty areas and may be subject to additional codes and
15 canons of those fields, such as legal ethics and the Uniform Standards of Professional
16 Appraisal Practice (USPAP). Regardless of their real estate specialties or fields of practice,
17 all REALTORS are bound by the Code of Ethics of the National Association of REALTORS.
18
19 PROFESSIONAL DESIGNATIONS AND CERTIFICATIONS
20
21 The education never stops for the true professional. Even if you have been in the real
22 estate business for many years, you need to continue your real estate education to ensure
23 long-term success. The constant quest to improve your presentation skills, prospecting
24 skills, marketing skills, and understanding of technology, not to mention keeping up-to-date
25 on changes in the law, will allow you to grow your business and achieve your business goals
26 over the long term.
27 In the beginning, it is critical to learn as much as possible about the industry. This course
28 is designed to help you to understand the correlation between training and the success of
29 your business, but it is only the beginning. You should check with local real estate schools
30 or REALTOR associations to find out about any educational courses they offer. Taking
31 advantage of any education and training, as often as possible, is the key to success in the
32 real estate industry.
33 There are numerous professional designations offered through the NAR and the FAR.
34 You should review these designations to see which ones may be appropriate for you to
35 pursue. The process of attaining a designation may take several years in some cases, but it
36 will be well worth it. Start now and continue working on them as your business grows. These
37 designations will increase your credibility in the marketplace and provide another tool to
38 separate you from the competition.

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1 Designations and certifications from the NAR website are shown in the following tables.
2 This list is only a sampling of designations and certifications that are available from a variety
3 of sources.
4
5 For more information, please visit the NAR website:
6 www.realtor.org/designations-and-certifications
7
8
9
NAR Certifications
10 Certification Initials Description Contact
11 Learn to work effectively with, and within today’s
12 At Home with
diverse real estate market. The AHWD certification NAR
13 AHWD® teaches you how to conduct your business with 1-800-874-6500
Diversity
sensitivity to all client profiles and build a business [email protected]
14 plan to serve them successfully.
15 The BPOR certification provides REALTORS with
16 knowledge and skills to perform accurate and NAR
Broker Price Opinion
BPOR professional broker price opinions (BPOs) and 1-800-874-6500
17 Resource
comparative market analyses (CMAs), while [email protected]
18 reducing risk and increasing opportunities.
19 This certification teaches you to use cutting-edge NAR/e-PRO
20 e-PRO® e-PRO technologies and digital initiatives to link up with (877) 397-3132
today’s savvy real estate consumer. [email protected]
21 The MRP certification focuses on educating real
22 Real Estate Buyer’s
estate professionals about working with current and
Military Relocation Agent Council (REBAC)
23 MRP former military service members to find housing
Professional 1-888-648-8321
solutions that best suit their needs and take full
24 advantage of military benefits and support.
[email protected]
25 This certification is designed for REALTORS who
26 Resort and Second- facilitate the buying, selling, or management of NAR
27 Home Property RSPS properties for investment, development, retirement, 1-800-874-6500
Specialist or second homes in a resort, recreational, and/or [email protected]
28 vacation destination.
29 The SFR certification teaches real estate
30 Short Sales and
professionals to work with distressed sellers and the
NAR
finance, tax, and legal professionals who can help
31 Foreclosure SFR®
them, qualify sellers for short sales, develop a short
1-877-510-7855
32 Resource [email protected]
sale package, negotiate with lenders, safeguard your
33 commission, limit risk, and protect buyers.

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 Real Estate as a Career 9

1 NAR Designations
2 Designation Initials Description Contact
3 Real Estate Buyer’s
4 Accredited Buyer This designation is designed for real estate buyer Agent Council (REBAC)
ABR®
Representative agents who focus on working directly with buyer- 1-800-648-6224
5 clients at every stage of the home-buying process. [email protected]
6 The esteemed ALC are the most trusted
7 knowledgeable, experienced, and highest-producing
8 experts in all segments of land. Conferred by the REALTORS Land
Accredited Land sm REALTORS Land Institute, the designation requires Institute (RLI)
9 ALC
Consultant successful completion of a rigorous LANDU 1-800-441-5263
10 education program, a specific, high-volume and [email protected]
11 experience level, and adherence to an honorable
Code of Conduct.
12 The CCIM designation is commercial real estate’s
13 global standard for professional achievement, CCIM Institute
Certified Commercial
14 CCIMsm earned through an extensive curriculum of 200 1-800-621-7027
Investment Member
15 classroom hours and professional experiential www.CCIM.com
requirements.
16 Instantly align yourself with the best in international
17 real estate by earning the CIPS designation. The
NAR
18 program includes five full days of study focusing on
Certified International ® 1-800-874-6500
CIPS the critical aspects of international real estate
19 Property Specialist
transactions, and an influential network of 2,000
[email protected]
20 professionals who turn to each other first when
21 looking for referral partners.
22 CPM designees are recognized as experts in real
Institute of Real Estate
Certified Property estate management. Holding this designation
23 CPM® Management (IREM)
Manager demonstrates expertise and integrity to employers,
1-800-837-0706
24 owners, and investors.
25 The CRB is one of the most respected and relevant
designations offered in real estate business
26 management. It is awarded to REALTORS who have
CRB Council
27 Certified Real Estate sm 1-800-621-8738
CRB completed advanced educational and professional
Brokerage Manager [email protected]
28 requirements. CRB designees are better positioned
29 to streamline operations, integrate new technology,
and apply new trends and business strategies.
30 The CRS designation is the highest credential
31 Council of Residential
awarded to residential sales agents, managers, and
Certified Residential Specialists (CRS)
32 CRS brokers. On average, CRS designees earn nearly
Specialist® 1-800-462-8841
three times more in income, transactions, and gross
33 sales than non-designee REALTORS.
www.crs.com
34 The Counselors of Real Estate is an international
35 group of recognized professionals who provide The Counselors of Real
36 Counselor of Real seasoned, expert, objective advice on real property Estate®
CRE
Estate® and land-related matters. Only 1,100 practitioners (312) 329-8427
37 throughout the world carry the CRE designation. [email protected]
38 Membership is by invitation only.
39 For general appraisers, this designation is awarded
to those whose education and experience exceed NAR
40 General Accredited
GAAsm state appraisal certification requirements and is 1-800-874-6500
41 Appraiser
supported by the National Association of [email protected]
42 REALTORS.
43 Through NAR's Green Designation, the Green The Green Resource
Resource Council provides ongoing education, Council
44 NAR’s Green
GREEN resources, and tools so that real estate practitioners 1-800-498-9422
45 Designation
can successfully seek out, understand, and market greendesignation@
46 properties with green features. realtors.org
47 REALTORS with the GRI designation have in-depth
training in legal and regulatory issues, technology,
48 NAR
Graduate, REALTOR professional standards, and the sales process.
GRIsm 1-800-874-6500
49 Institute Earning the designation is a way to stand out to
[email protected]
50 prospective buyers and sellers as a professional with
expertise in these areas.

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1 NAR Designations
2 Designation Initials Description Contact
3 This designation is unique to the REALTOR family
designations. It emphasizes, that in order to enhance
4 Performance your business, you must enhance yourself. It Women’s Council of
5 Management PMN focuses on negotiating strategies and tactics, REALTORS
Network networking and referrals, business planning and 1-800-245-8512
6 systems, personal performance management
7 and leadership development.
8 RCE is the only professional designation designed
REALTOR specifically for REALTOR association executives. NAR
9 Association Certified RCE RCE designees exemplify goal-oriented AEs with (312) 329-8545
10 Executive drive, experience, and commitment to professional [email protected]
growth.
11 For residential appraisers, this designation is
12 Residential
awarded to those whose education and experience NAR
13 RAAsm exceed state appraisal certification requirements and (312) 329-8268
Accredited Appraiser
is supported by the National Association of [email protected]
14 REALTORS.
15 The SRS designation is the premier credential in
seller representation. It is designed to elevate Council of Real Estate
16 professional standards and enhance personal Brokerage Managers
Seller Representative
17 Specialist
SRS performance. The designation is awarded to real (CRB)
18 estate practitioners by the Council of Real Estate 1-800-621-8738
Brokerage Managers (CRB) who meet specific www.srscouncil.com
19 educational and practical experience criteria.
20 The SIOR designation is held by only the most
knowledgeable, experienced, and successful
21 Society of Industrial
commercial real estate brokerage specialists. To
Society of Industrial and
and Office SIOR® Office REALTORS®
22 REALTORS
earn it, designees must meet standards of
(202) 449-8200
23 experience, production, education, ethics, and
provide recommendations.
24 The SRES designation program educates
25 REALTORS on how to profitably and ethically serve
the real estate needs of the fastest growing market
26 Seniors Real Estate in real estate, clients age 50+. By earning the
SRES Council
SRES 1-800-500-4564
27 Specialist® SRES® designation, you gain access to valuable
[email protected]
28 member benefits, useful resources, and networking
opportunities across the U.S. and Canada to help
29 you in your business.
30
31 REQUIRED SKILLS FOR THE REAL ESTATE PROFESSIONAL
32
33 Today’s real estate market is extremely competitive and complex; it presents
34 unexpected challenges and opportunities for the real estate professional. Perhaps the most
35 important factor in your success in real estate is skills training. It is imperative that you
36 obtain the skills and knowledge necessary to compete successfully in the real estate market.
37 The real estate professional is expected to have expert knowledge in the following three
38 areas: valuation, marketing, and property transfer.
39
40 • Valuation. Real estate licensees must be able to discern important differences
41 between properties and know how to translate those differences into value.
42 Licensees must be educated with the skills, procedures, and tools to perform a
43 comparative market analysis.
44
45 • Marketing. Real estate markets are constantly changing. Licensees must have an
46 understanding of the tools and technologies available to market a property.

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 Real Estate as a Career 11

1 • Property transfer. Conveying ownership or rights in property is a complex process.

2 There are many laws, documents, disclosures, and technicalities involved in
3 completing a real estate transaction. Deeds, mortgages, surveys, appraisals,
4 contracts, title insurance, floodplains, and zoning and building codes are some of the
5 components that the licensee is expected to handle. It is important that licensees
6 have the procedural knowledge and understanding of the various forms, tools, and
7 processes for transacting real estate.
8
9 There are three basic categories of knowledge and skills necessary to build the expert
10 knowledge you need for your business: procedural knowledge, marketing skills, and product
11 knowledge. The successful professional must be proficient in all of them. Additionally,
12 today’s real estate professional must be able to make good use of current technology in all
13 aspects of their profession.
14
15 Procedural Skills
16
17 We cannot overstate the need for procedural knowledge. A sales associate should never
18 enter the marketplace without the proper understanding of the information required to
19 perform their duties as a licensed real estate professional. For example, what good does it
20 do to work with a buyer if you find an appropriate property but then you do not know how to
21 write an offer? The responsibility for completing the contract is yours.
22 Areas of procedural knowledge include:
23
24 • Listing contract
25 • Disclosures
26 • Comparative market analysis (CMA) preparation
27 • Seller net sheet
28 • Buyer qualification / financial
29 • Purchase and sale contracts
30 • Closing Disclosure
31 • Investment analysis
32 • Foreclosure process
33
34 Marketing Skills
35
36 Marketing skills are critical for any successful professional. Where business comes from
37 and how to get it are necessary answers for any licensee. This course will cover some of the
38 marketing skills required, but you will likely need additional training, which you can find
39 through a real estate school, your sponsoring broker, the National Association of
40 REALTORS (NAR), the Florida Association of REALTORS (FAR), and other local
41 REALTOR associations. Some of the marketing topics that you will find particularly helpful
42 include:
43
44 • Self-marketing (business planning)
45 • Prospecting for listings
46 • Building and making a listing presentation
47 • Servicing the listing
48 • Qualifying the buyer/needs/motivation
49 • Showing a property
50 • Closing the transaction

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 12 Chapter 1

1 Product Knowledge
2
3 As a real estate professional, you are expected to know and completely understand the
4 market in which you work. The customers who retain your services expect you to provide
5 this knowledge in an effort to meet their real estate needs. Specific product knowledge
6 includes:
7
8 • Market statistics
9 • Available inventory
10 • Distressed properties
11
12 TECHNOLOGY
13
14 The way real estate is practiced has changed drastically in the last 10 years. Technology
15 has enabled licensees to reach more people, do more business, and close more
16 transactions than ever before. Today’s customers expect and demand that real estate
17 professionals be readily accessible and proficient in the use of technology. Real estate is
18 still a people business, but the way professionals conduct the business is largely Internet-
19 based and technology-oriented. Customers expect a quick response to their inquiries,
20 whether by e-mail, cell phone, or text message.
21 At a very minimum, you need access to and must be proficient in, the use of the
22 following:
23
24 • The multiple listing service (MLS) system
25 • A computer, laptop, or tablet
26 • Forms programs
27 • Word processing software programs
28 • Contact management programs
29 • The Internet
30 • E-mail programs
31 • A cell phone with hotspot data
32 • A digital camera
33
34 Multiple Listing Service System
35
36 The multiple listing service (MLS) is one of the most important resources for the success
37 of your real estate business. It’s extremely important that you be completely knowledgeable
38 and proficient in the use of the MLS and all that it has to offer. This training is readily
39 available through the local REALTOR Association and it’s an absolute necessity for your
40 success.
41 The MLS affords you the opportunity to market your listings to thousands of local
42 REALTORS and thousands of REALTORS statewide. This is in addition to marketing
43 properties to potential buyers and other REALTORS around the world. The MLS also
44 provides a detailed database of properties of all kinds, which are available for sale or lease
45 on a local and state level. As if this was not enough, the MLS is the go-to source for market
46 data and statistics. Market statistics are available in all market areas at the click of a button.
47 It’s extremely important that you be up-to-date and knowledgeable in local market
48 conditions. Today’s clients demand it.

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1 The MLS provides extensive marketing tools to support you and your real estate
2 business. Professionally designed listing presentations and buyer presentations are waiting
3 for you to personalize and customize them to suit your business needs. Today's buyers and
4 sellers are far more sophisticated than in years past. They require detailed information
5 concerning properties and market conditions. It’s imperative that you have knowledge of and
6 access to the information required by your clients. Think about it. How often do consumers
7 who need a product or service call for assistance but receive only lip service or are put off
8 entirely? In those cases, consumers become extremely frustrated and call someone else.
9 Conversely, what happens when a consumer calls someone who is a true professional; one
10 who is courteous and has all the information the consumer requires? That consumer is often
11 ready to do business. If you are a professional, courteous service provider, you will be ready
12 to do business when those consumers make that call.
13
14 Forms Programs
15
16 Forms programs allow you to provide clear, precise, and professionally prepared real
17 estate forms. On very rare occasions, you may be forced to write a contract on the hood of
18 the car, but by-and-large those days are long gone. Today, licensees prepare all real estate
19 forms at the computer and send them via e-mail or fax to all of the interested parties. Not
20 only can you prepare the forms and send them directly from the forms program, but you can
21 also store them for later use.
22 You can download several excellent form programs to your computer. In addition, all
23 members of Florida REALTORS have access to an excellent forms program called Forms
24 Simplicity.
25 The most commonly used forms are:
26
27 • Sales and purchase contract with addendums
28 • Brokerage relationship disclosures
29 • Listing contracts
30 • Lead paint notices
31 • Seller’s property disclosure
32 • Leases and intent to enter into a lease
33 • Commission agreements
34
35 At the very least, licensees need to know what forms are available online, how to
36 prepare them, how to add and attach addendums, how to scan and e-mail them, and how to
37 save them for future use.
38 Remember, the forms you prepare are seen by a vast number of people, including the
39 other real estate professionals for the transaction, the buyer, the seller, the attorneys, the
40 mortgage loan originator, and the title company, just to name a few. All of them will form an
41 opinion of your level of professionalism based on how you prepared those real estate forms.
42
43 Word Processing
44
45 Word processing is an indispensable part of any real estate business, one that many
46 professionals take for granted. There are numerous valuable applications, such as Microsoft
47 Word, that you can use in your daily business activities. You can do all of your real estate
48 correspondence, marketing pieces, and organization of information, projects and ideas
49 through a good word processor. One of the most useful applications is mail merge, which
50 gives you the ability to merge databases with real estate correspondence to create easy,
51 efficient, and targeted prospecting pieces. The program also allows you to create a separate
52 folder for each client, which you can easily access for future reference.

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 14 Chapter 1

1 Contact Management Software

2
3 As a successful real estate professional, you will need to maintain and access vast
4 amounts of information about the people with whom you work. Names, phone numbers, e-
5 mail addresses, websites, fax numbers, mailing addresses, and so on are all part of the data
6 you will collect about your contacts. Contact management software affords users the
7 opportunity to store this information in vast quantities and retrieve it at will. No more Post-it
8 notes or scraps of paper that you can easily lose or misplace. All the important information
9 will be in one location and easily accessible when you need it.
10 Contact management software is crucial in maintaining a prospecting database. Without
11 the proper use of contact management software, your chances of success in the real estate
12 business will be severely hampered. Some popular contact management software programs
13 include Top Producer and ACT Contact Management.
14
15 The Internet
16
17 Almost everyone uses the Internet today, including real estate licensees, buyers, sellers,
18 investors, attorneys, accountants, bankers, and educators. The Internet is an indispensable
19 part of real estate today. You do the vast majority of your marketing, prospecting, and
20 communicating via the Internet, and it’s still growing. The Internet has made it possible for
21 licensees to reach more people, do more business, and close more transactions than ever
22 before. We cannot overstate the power of the Internet. More than 85% of all buyers start
23 their search for a new home on the Internet.
24 Internet Explorer is the most widely used browser, but there are others like Firefox,
25 Safari, and Google Chrome; more are likely to come on the scene as technology changes.
26 There are also numerous Internet service providers (ISPs), such as AT&T, Comcast, and
27 Verizon.
28
29 E-mail
30
31 Today, we do more and more of our communication by e-mail. In fact, it’s the preferred
32 method of communication by many customers. As with phone calls, customers expect a
33 quick response to their e-mail correspondence, anything less is unacceptable. For the real
34 estate professional, e-mail is a necessary tool.
35 To ensure your success, become proficient in the following e-mail tasks:
36
37 • Create an address book
38 • Send an e-mail with attachments
39 • Reply to an e-mail
40 • Forward an e-mail
41 • Sort, save, and file e-mails for future reference and follow up
42 • Develop password security skills
43
44 According to the 2010 NAR member profile, e-mail is the preferred method of
45 communication with customers for 92% of all REALTORS. Popular e-mail programs include
46 Microsoft Outlook, Outlook Express, and various free web mail services, such as Gmail and
47 Yahoo.
48
49 Cell phone
50
51 In the real estate business, the cell phone is indispensable. It enables you to maintain
52 immediate contact with all of your customers. As a real estate professional, you may have
53 found that the cell phone is a critical tool that allows you to return phone calls, check e-

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 Real Estate as a Career 15

1 mails, access the Internet, take photos, and store data at a moment’s notice. It’s the link
2 between you and your real estate business when you are on the go. Today, customers
3 expect a quick response from their real estate professional.
4
5 Digital Camera
6
7 The digital camera plays a critical role in real estate marketing. It’s essential for listing
8 agents to market and promote their properties properly. It’s said that one picture speaks a
9 thousand words. This is certainly true in real estate. The digital camera allows you to take
10 large numbers of color photos of your newly listed property and upload them to the Internet,
11 MLS, property flyers, brochures, and direct mail pieces. Consumers view listings with more
12 than six photos on the Internet 300% more than properties with one or no pictures. The MLS
13 allows agents to upload 16 or more color pictures per listing.
14
15 Accessibility
16
17 Wireless access is another critical component of communications. Many tablet-type
18 devices have the option of connecting to a network as a paid service, just like a cell phone.
19 Air cards are also available for laptops. Some providers may offer “hotspot” access, which
20 turns a cell phone into a wireless access point. This creates a wireless network where none
21 may otherwise be available. In the future, access providers will no doubt offer an even
22 greater array of options for staying connected. True professionals will ensure that they have
23 Wi-Fi access and will not rely on using the client or customer’s access.
24
25 PLANNING YOUR BUSINESS
26
27 Selecting an Employer
28
29 Newly licensed sales associates are often confused as to what they should look for in an
30 employer. Typically, the first question an associate asks is, “What is my commission rate?”
31 Choosing an employer requires far more information than simply looking at the commission
32 rate. Each real estate professional needs to make this decision as an individual. What is
33 right for one associate may not be right for another. Remember, you are there to be
34 interviewed, but most importantly, you are there to interview your broker. To help clarify this
35 important decision, below are some questions associates can and should ask when
36 selecting an employer.
37
38 • What is your in-house training program?
39 • Do you pay for outside seminars or local training?
40 • Do you typically hire new associates?
41 • Do you provide a mentor program and/or office assistance for the licensees?
42 • Does the firm have a selection of books, audios, videos, and CDs on hand for
43 associates to use?
44 • What is your commission plan? How does it work at year-end (i.e., rollbacks)?
45 • At what percentage can associates take listings?
46 • Do you charge transaction fees?
47 • Do you have an E&O (errors and omissions) policy? Who pays for it? How much is
48 the coverage?
49 • What marketing does the company do? What marketing am I permitted to do on my
50 own? Who pays for marketing? Who pays for direct mailing (postage and printing)?

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1 • Does the company have a website? Are MLS listings on the site? Can a sales
2 associate have their own site? What company information must be on an individual
3 associate’s site?
4 • What are the desk fees, phone usage fees, long distance fees, copy fees?
5 • Who pays for yard signs? Business cards?
6 • Do you have a warranty company?
7 • Do you have an in-house attorney?
8 • Do you have an in-house mortgage company? Will I be required to use a particular
9 mortgage company?
10 • What happens if I sell my own home?
11 • If I leave the company, what happens to my listings?
12 • If the transaction offers a bonus, how is it split?
13 • Are there any other fees that we have not discussed?
14 • Are there areas where your policies differ from most other brokers?
15 • Do I have to sign a one-year commitment with penalty if I decide that this brokerage
16 firm is not for me?
17
18 Creating a Mission Statement
19
20 A mission statement is a description of a desired
21 outcome that excites, motivates, and helps you to create a
22 mental picture of your business goal.
23
24 Mission Statement Example:
25
26 “To be the educated choice for real estate consumers and the provider of real
27 estate knowledge, marketing, and professional services that are essential to my
28 client’s success and profitability in their real estate transactions.”
29
30 Create your own mission statement in the space provided below.
31
32
33
34
35
36 Setting Goals
37
38 In order to run a successful business, it is important to set goals and develop a business
39 plan to achieve those goals. Setting realistic and attainable goals is a high priority. It is a
40 good idea to identify your short-term, intermediate, and long-term goals.
41
42 • Short-term goals. Ask this question: What specific things will I do in my first year?
43 o How many contacts will I make per week?
44 o How many listings will I get each month?
45 o What training sessions will I attend?
46
47 • Intermediate goals. Ask this question: How do I see my career progressing from
48 year two to year five?
49
50 • Long-term goals. Ask this question: Where do I want my career to be in five to ten
51 years from now?

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 Real Estate as a Career 17

1 When setting your goals, you may find the following tips useful:
2
3 • Make your goals definite and measurable. It’s critical for your goals to be both
4 realistic and attainable. For example, decide that you will get “three new listings a
5 month,” rather than that you will get “more listings.”
6
7 • Put your goals in writing. It’s much easier for you to prioritize your tasks and
8 evaluate your progress if your goals are in writing.
9
10 • Realize that goals are not rigid. As you move through your career, your talents and
11 interests may change, so you can adjust your goals to match those changes.
12
13 It’s also important to set daily and weekly work objectives. These objectives should be
14 steps that lead directly to meeting your short-term goals.
15
16 Daily Activities
17
18 You should devote some of each day to these and other similar activities.
19
20 • Return phone calls
21 • Develop new leads
22 • Personally hand out a set number of business cards to prospective buyers
23 • Answer mail and e-mail
24 • Review new listings
25 • Check on sold properties
26 • Call potential clients*
27 • Preview a set number of listings per day as part of your farming activity
28 • Prepare for listing presentations
29 • Show property, if applicable
30
31 * Remember to consult and comply with the “National Do Not Call Registry” and the Florida “Do Not Call”
32 guidelines before making any solicitation calls.
33
34 For more information, please visit the
35 Federal Trade Commission website: www.ftc.gov
36
37 Weekly Activities
38
39 Remember the following specific activities that will contribute greatly to your success as
40 a salesperson:
41
42 • Develop your sphere of influence by letting them know you are a real estate agent.
43 Your sphere of influence is comprised of everyone you know and everyone who
44 knows you. It’s generally believed that the average adult knows about 400 people by
45 name. If each of these 400 people also has a sphere of 400 people, then that’s
46 160,000 people you could conceivably have a chance to work with! Actually, there
47 are three levels, or circles, of influence. They are listed below.
48 o Core circle. The core circle level includes your family (spouse, parents, aunts,
49 uncles, cousins, nieces, nephews, grandparents, etc.), work team, and your
50 boss. You interact with individuals from your core circle many times every
51 day. This level can also include an inner core of people with whom you have
52 partnered and who understand and share your goals.

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 18 Chapter 1

1 o Inner circle. The inner circle includes your work acquaintances, personal friends,
2 vendors, past colleagues, neighbors, church friends, etc. These resources are
3 often untapped, and you can easily call upon them. This is a broad group of
4 people that know you.
5 o Outer circle. The outer circle is made up of people you don’t see regularly;
6 people whose names you may or may not recognize but to whom you could be
7 introduced, such as community members from local organizations, members of
8 your local chamber of commerce. These are people you could approach but
9 probably have not. This is fertile ground for cultivation.
10
11 • Preview your company’s listings to become more familiar with the amenities. This will
12 increase your expertise.
13 • Post pictures and videos taken while previewing your daily listings. Your active
14 presence on social media will expose your knowledge and efforts and help to attract
15 possible leads.
16 • Spend time learning about other company’s listings in your geographic area or your
17 area of specialty.
18 • Familiarize yourself with your office’s policies and procedures manual. If your
19 employer broker has one, it will probably include information on confidentiality
20 expectations, use of personal assistants, general office procedures, advertising
21 requirements, how to work with clients, what records licensees are required to keep,
22 and how to handle both in-office and third-party disputes.
23 • Practice filling out the forms your company uses so you will not falter when working
24 with clients.
25 • Learn how to use all of the machines at your firm (e.g., fax machine, copy machine,
26 voice mail system, etc.).
27 • Become proficient in using the computer, especially for e-mail and MLS searches.
28 • Learn what you need to know about real property taxes and the tax benefits of home
29 ownership.
30 • Make sure you have the proper equipment for success (e.g., business cards, a cell
31 phone, and a clean, comfortable car).
32 • Equip your car with important items, such as maps or GPS, for sale signs, extra pens
33 and forms, a tape measure, a flashlight, small tools, calculator, digital camera, and
34 chargers for all devices.
35 • Read professional trade magazines and newspapers published by real estate
36 groups.
37 • Attend business-related courses or seminars.
38 • Research real estate topics on the Internet.
39
40 To start, keep your plan simple and basic. As your business grows and progresses, your
41 business plan should become more detailed in content. Realize that your plans will be
42 interrupted and even disrupted. This is normal. However, as long as you keep working to
43 stay on track, you will achieve your goals. Tenacity is the key to success.
44
45 Time Management
46
47 Author of several best-selling business development books, Steven Covey, makes a
48 very distinct point about how important it is to spend more time on significant activities.
49 These types of activities are what make us advance in our careers. Even though it’s often
50 easier to spend our time on insignificant tasks (sometimes it makes us feel like we are
51 accomplishing more), we must fight that urge. Using time wisely is a critical tool for your
52 business success.

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 Real Estate as a Career 19

1 The following tips will help you to manage your time more effectively.
2
3 • Time blocking. Time blocking is a time management method that asks you to divide
4 your day into blocks of time. Each block is dedicated to accomplishing a specific
5 task, or group of tasks, and only those specific tasks. With days that are time blocked
6 in advance, you will not have to constantly make choices about what to focus on.
7
8 • Consider a time management course. Your broker may offer time management
9 training in order to enhance productivity. If not, you may want to consider obtaining
10 the training elsewhere such as a local college, REALTOR association, or an online
11 source. Franklin Covey courses are a great place to start. Visit
12 www.franklincovey.com for more information.
13
14 • Plan ahead. Planning ahead for each week and each day will help to focus your
15 efforts and control your business. Start by preparing a To-Do List the night before for
16 the following day. Be sure to put the most urgent tasks first on the list and assign a
17 time for completion. Any task that is not completed should be first on the To-Do List
18 for the next day. There are numerous time management software programs available
19 to assist you.
20
21 • Control distractions. You need to focus your efforts on the task at hand. It takes
22 substantial discipline to keep the office, other associates, the phone, e-mails, or text
23 messages from distracting you. In real estate, it’s inevitable that unexpected issues
24 will arise. Try to prioritize and deal with them as quickly as possible. Learn to say,
25 “No” when people make unwelcome or unnecessary demands on your time.
26
27 • Multitask when possible. Learning to utilize your time to the fullest can render huge
28 results. Try checking your e-mail and taking appropriate action while you are waiting
29 for a client or are on-hold on the phone. Return text messages or e-mails while
30 waiting for lunch or dinner to be served or when riding as a passenger in a car.
31
32 • Take a break. Take a break when needed. Just a few minutes to stand, walk around,
33 and stretch your legs can have a reenergizing effect on your mind and body. You will
34 be more productive and better able to focus on the task at hand.
35
36 • Schedule time off. The real estate business can be extremely stressful and can
37 take a toll on you and your business. Try to schedule time off for family, friends,
38 personal interests, or just to relax around the house. You will be more productive and
39 efficient in your efforts. Otherwise, you may find yourself burning out from the day-to-
40 day stress a successful sales associate may encounter.
41
42 • Monitor your time. Purchase a day planner. Make a commitment that for a ten-day
43 period, you will make a note of everything you do and how long you spent doing it. At
44 the end of the 10 days, total up how much time you actually spent doing the business
45 of real estate - those things that actually generate money in your business. You may
46 be surprised at how much time you are wasting. Armed with this information, you will
47 be better able to take effective action with regard to time management.

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 20 Chapter 1

1 Project Your Income and Expenses

2
3 When planning for your first year, you’ll need to consider the financial aspects of your
4 business, which include the projected income and operating expenses, as well as what it will
5 take to reach those financial goals.
6
7 Business Income
8
9 Most real estate professionals have some idea of how much income they need or want
10 to make annually. It’s a good idea to put down those thoughts on paper and calculate what it
11 would take to earn the desired amount.
12 On the pages that follow, we have provided you with a worksheet to use to do your
13 calculations. A sample of a completed form follows the blank form to illustrate how to enter
14 your personal business income goals and information.
15
16 BUSINESS PLAN WORKSHEET
17
Desired Annual Income
18
19 Computing Monthly Income
20 1 Desired/Projected Annual Income
21 2 Monthly Income (Line 1 ÷ 12)
22 Income from Listings
23 3 Estimated Percentage of Income from Listings
24
4 Annual Income from Listings (Line 1 x Line 3)
25
26 5 Monthly Income from Listings (Line 4 ÷ 12)
27 Income from Sales
28 6 Estimated Percentage of Income from Sales (100% - Line 3)
29 7 Annual Income from Sales (Line 1 x Line 6)
30 8 Monthly Income from Sales (Line 7 ÷ 12)
31
32 Reaching Your Listing Income
33 9 Average Commission in Your Area (Percentage)
34 10 Average Commission in Your Area (Dollar Amount)
35 11 Associate’s Average Listing Income (Less Broker’s Share)
36 12 Listings Sold to Reach Monthly Income (Line 5 ÷ Line 11)
37 Listings Needed Every Month (Assuming 80% of listings sell)
38 13 (Line 12 ÷ 80%)
39 Presentations Needed to Get a Listing (Start with 3):
40 14 Presentations Needed to Reach Monthly Required Listings (Line 13 x 3)
41 Contacts Needed per Listing Presentation (15):
42 Contacts Required per Month to Reach Presentation Goal
43 15 (Line 14 x 15)
44
45 Reaching Your Sales Income
46 16 Average Sales Income in Your Area (Same as Line 11)
47 17 Sales Made to Reach Monthly Income (Line 8 ÷ Line 16)
48 Annual Listings and Sales Needed
49 Annual Listings (Line 13 x 12)
50
Annual Sales (Line 17 x 12)
51
52 Annual Presentations (Line 14 x 12)
53 Annual Contacts (Line 15 x 12)

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 Real Estate as a Career 21

1
2 BUSINESS PLAN WORKSHEET
3 Desired Annual Income $75,000
4
5 Computing Monthly Income
6 1 Desired/Projected Annual Income $75,000
7
8 2 Monthly Income (Line 1 ÷ 12) $6,250
9 Income from Listings
10
11 3 Estimated Percentage of Income from Listings 30%
12 4 Annual Income from Listings (Line 1 x Line 3) $22,500
13
14 5 Monthly Income from Listings (Line 4 ÷ 12) $1,875
15 Income from Sales
16
6 Estimated Percentage of Income from Sales (100% - Line 3) 70%
17
18 7 Annual Income from Sales (Line 1 x Line 6) $52,500
19
8 Monthly Income from Sales (Line 7 ÷ 12) $4,375
20
21 Reaching Your Listing Income
22 9 Average Commission in Your Area (Percentage) 3%
23
24 10 Average Commission in Your Area (Dollar Amount) $6,000
25 11 Associate’s Average Listing Income (Less Broker’s Share) $3,000
26
27 12 Listings Sold to Reach Monthly Income (Line 5 ÷ Line 11) .625
28 Listings Needed Every Month (Assuming 80% of listings sell)
29 13 (Line 12 ÷ 80%) .78
30 Presentations Needed to Get a Listing (Start with 3):
31 14 Presentations Needed to Reach Monthly Required Listings (Line 13 x 3) 2.34
32 Contacts Needed per Listing Presentation (15):
33 Contacts Required per Month to Reach Presentation Goal
34 15 (Line 14 x 15) 35.1
35 Reaching Your Sales Income
36
37 16 Average Sales Income in Your Area (Same as Line 11) $3,000
38 17 Sales Made to Reach Monthly Income (Line 8 ÷ Line 16) 1.46
39
40 Annual Listings and Sales Needed
41 Annual Listings (Line 13 x 12) 9.36
42
43 Annual Sales (Line 17 x 12) 17.52
44 Annual Presentations (Line 14 x 12) 28.08
45
46 Annual Contacts (Line 15 x 12) 420
47
48 According to the example shown above, the sales associate who wants to earn $75,000
49 per year would need to list 9-10 homes, sell 17-18 homes, give 28 presentations, and make
50 420 contacts during the year.
51 Taking the time to work through this worksheet for yourself will give you the information
52 to set realistic weekly and monthly goals to help you reach those income projections. You
53 can then check your progress each month and make whatever adjustments are needed to
54 stay on target to reach your desired income.
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 22 Chapter 1

1 Operating Expenses
2
3 The form below shows the potential operating expenses for the first year of your
4 business. This number will vary on an individual basis but will give you a clear idea of the
5 costs to consider.
6
7
BUSINESS OPERATING EXPENSES WORKSHEET
8
9 Technology Monthly Annually
10 Software
11 Digital Camera
12 Laptop Computer
13 Sub-Totals:
14 Communication Monthly Annually
15 Cell Phone
16 Internet Access
17 Sub-Totals:
18 Insurance Monthly Annually
19 Automobile
20 E&O
21 Sub-Totals:
22 Automobile Monthly Annually
23 Gas
24 Cleaning & Detailing
25 Maintenance
26 Sub-Totals:
27 Professional Fees Monthly Annually
28
MLS
29
Professional Affiliations
30
License Renewal
31
32 Sub-Totals:
33 Education Monthly Annually
34 GRI
35 CRS
36 CD’S & DVD’S
37 Books
38 Seminars
39 Advanced Courses
40 Sub-Totals:
41 Personal Promotion Monthly Annually
42 Post Cards
43 Postage
44 Website
45 Photography
46 Personal Brochure
47 Personal Letters
48 Business Cards
49 Closing Gifts
50 Thank You Cards
51 Sub-Totals:

Florida Real Estate Sales Associate Post-License Course Reicon Publishing, LLC
 Real Estate as a Career 23

1 Listing Expenses Monthly Annually

2
Signs
3
Lockbox
4
E-Flyers
5
6 Flyers
7 Classified Ad’s
8 Magazine Ad’s
9 Open Houses
10 Just Listed / Sold Cards
11 Virtual Tours
12 Sub-Totals:
13 BUSINESS OPERATING EXPENSE TOTALS
14
15 Category Monthly Annually
16 Technology
17 Communication
18 Insurance
19 Automobile
20 Professional Fees
21 Education
22 Personal Promotion
23 Listing Expenses
24 Grand Total:
25
26 Make Use of Marketing Resources
27
28 One thing is certain; you can’t survive in the world of professional real estate without
29 good marketing. Getting your name out there and establishing yourself as a professional in
30 your market area is necessary. When it comes to building your business, there is no
31 substitute for a well-coordinated, professional marketing campaign. The goal is simple.
32 When people think real estate, you want them to think of you. Start with the basics and build
33 from there.
34
35 Personal Marketing Basics
36
37 • Know your market area and target market.
38 • Build your image.
39 • Be consistent in your message.
40 • Market across all types of media, including print and online.
41
42 Personal Marketing Resources
43
44 You have several vehicles available to you to help in your market efforts. Incorporate as
45 many of these as you can into your personal marketing campaign. Be sure to measure
46 your results. Anything worth doing is worth tracking. Keep a sharp eye on your costs, so
47 you will know how to tweak your marketing efforts.
48
49 • Professional business photo. A current professional picture is necessary to get
50 started. You will use this photo on almost every marketing piece, such as business
51 cards, your website, blogs, property flyers, and direct mailings, just to name a few.
52 What do you want the public to think about you? A picture speaks a thousand words.
53 Build your image on all that you do.
Reicon Publishing, LLC Florida Real Estate Sales Associate Post-License Course
 24 Chapter 1

1 • Business cards. The first and most basic marketing tool of all is the business card.
2 Business cards are perhaps one of the most effective tools in building your brand.
3 Your business card says a lot about you. Use it freely and on a daily basis. Get
4 creative in different ways to use your card.
5
6 • Professional logo. Your company may have a logo but you should consider
7 creating one of your own. A good professional logo makes a statement to the public
8 about you and your image. Your logo shows the public what you want them to think
9 about you. You should use your logo on all marketing material.
10
11 • Personal brochure. A personal brochure can go a long way in building your image
12 and separating you from other real estate professionals. Brochures can be expensive
13 if professionally produced, but they can have great impact. If this is something you
14 can and want to do, you can find numerous companies online that produce
15 professional brochures.
16
17 • Professional website. A website is necessary today. The public expects it.
18 Professionally designed websites can be expensive, but the leads that a good
19 website can produce may make it well worth your investment. If expense is an issue,
20 as a REALTOR you may have access to free websites that are available to
21 customize. A website, if used properly, can go a long way in personal marketing. In
22 fact, your website should be the central hub in your marketing efforts. Remember,
23 your website must function as a lead generation tool, not just an online catalog or
24 brochure.
25
26 • Blog. Think of your blog as your own personal online newspaper. This is an
27 opportunity to get your personal message out, post articles, and link to informative
28 sites. A blog can be a real image builder. You can build a professional blog for free
29 by using Wordpress.com or Google’s Blogger.
30
31 As a REALTOR you have access to hundreds of professionally written articles on all
32 kinds of real estate topics. Go to Houselogic.com and log in by using your NAR ID
33 number.
34
35 • Social media. This is a free and effective method of getting the word out. Your
36 present and future customers are on social media sites; you need to be there, too.
37 You should consider the following three social media sites:
38
39 o Facebook
40 o LinkedIn
41 o Twitter
42
43 Check your local resources for seminars,
44 webinars, or other training on how to make the
45 most of social media sites.

Florida Real Estate Sales Associate Post-License Course Reicon Publishing, LLC
 Real Estate as a Career 25

1 PERSONAL MARKETING MISTAKES TO AVOID

2
3 Marketing takes a lot of time and effort. To help keep you on task and moving forward,
4 follow these tips.
5
6 • Don’t be a follower, be a leader. What’s right for someone else may not be right for
7 you.
8
9 • Don’t overextend your financial resources. It’s a better approach to start small and
10 grow as necessary.
11
12 • Don’t use jargon. Jargon is real estate industry terms that may not be familiar to the
13 public.
14
15 • Don’t get in a rut. Try to refresh your plan and image as necessary; keep it fresh.
16
17 • Don’t be inconsistent. Be consistent in your message and marketing efforts through
18 good times and bad. All marketing works. You must give it time to be effective. Once
19 you choose your marketing strategy, don’t change it, and don’t give up. It will bring
20 results!

Reicon Publishing, LLC Florida Real Estate Sales Associate Post-License Course
26 Chapter 1

CHAPTER 1 REVIEW QUESTIONS

1. Specializing in one type of property or on one particular neighborhood is a practice

referred to as , which is considered one of the best ways to succeed in
residential sales.

2. A residential transaction is defined as the sale of any improved residential property of

units or fewer, including (1) , (2) unimproved property intended for
units or fewer, (3) agricultural properties of acres or less, (4) leases with options to
purchase all or a portion of improved property of or fewer residential units, and (5)
dispositions of business interests for property of or fewer residential units.

3. is a business specialization where licensees assist

customers in locating and purchasing or leasing warehouse or manufacturing facilities.

4. is a business specialization option involving the

listing and sale of businesses.

5. is a business specialization in which highly skilled real estate

professionals answer questions and give expert advice to consumers.

6. The is a large national organization of real estate

professionals, whose members are entitled to use the trademark of .

7. The (doing business as ) is the

largest trade organization of real estate professionals in the State of Florida.

8. Joining your local association of REALTORS also gives you membership in and
in addition to providing access to the .

9. The was established to promote higher standards

of conduct in the real estate profession than the law provides.

10. The NAR Code of Ethics spells out the duties of REALTORS to the and
, the , and .

11. Professional and , obtained by completing education

and training, will increase your credibility and distinguish you from the competition.

12. Real estate professionals are expected to have expert knowledge in the areas of
, , and .

13. Real estate professionals must understand their market and have specific product
knowledge including , , and .

14. The provides a detailed database of properties of all kinds which are
available for sale or lease and is a critical resource for the success of your business.

15. When planning your first year of business, it is important to project your and
, as well as what it will take to reach those financial goals.

Florida Real Estate Sales Associate Post-License Course Reicon Publishing, LLC
 Real Estate as a Career 27

CHAPTER 1 PRACTICE EXAM

1. Greg grew up in and lives in a rural 5. Which of the following is NOT

farming area. He’s very comfortable considered residential property
selling that type of property and according to the Florida Statutes?
knows he can work well with clients a. Two-acres of farmland
in that area. What property type will b. A condominium unit
most likely be his specialty? c. A 50-unit motel
a. Timeshare/Vacation d. A vacant lot zoned for a single-family
b. Agricultural home
c. Commercial
d. Industrial 6. It is important to set definite and
measurable goals when planning
2. Which of the following statements your business. Which one of these
regarding property valuation is statements would NOT be considered
correct? a measurable goal?
a. A CMA is the same as an appraisal. a. I will make two new contacts every
b. Appraisals may only be performed by day this week.
licensed appraisers. b. I will practice my listing
c. Appraisals must always be presentations.
performed according to USPAP. c. I will get three new listings this
d. Real estate licensees may perform month.
appraisals for use in federally related d. I will complete a property
transactions without a separate management seminar within the next
license. year.

3. Real estate licensees must know the 7. Jake has decided to specialize in
procedures required for performing working with clients who purchase
their duties when transacting real and sell investment property such as
estate. Which of the following is NOT malls and shopping centers. What
procedural knowledge that is required property type will he be dealing with?
for a real estate licensee? a. Commercial
a. Preparing a listing contract b. Industrial
b. Providing an appraisal for use in a c. Residential
federally regulated transaction d. Agricultural
c. Preparing a purchase and sale
contract 8. Alice is setting her goals. Which of
d. Providing a comparative market the following would be considered an
analysis intermediate goal?
a. I will complete the GRI certification in
4. The MLS system is one of the most the next four years.
important resources for success in b. I will practice listing presentations
the real estate business. Which of the twice a week with an experienced
following benefits is NOT provided by agent for the next two months.
the MLS? c. I will open my own office within nine
a. Ability to market listings to a wide years.
audience d. I will distribute 200 business cards
b. Access to a database of prospect every month for the next six months.
names and contact information
c. Access to a large database of
properties for sale and lease
d. Access to market data and statistics

Reicon Publishing, LLC Florida Real Estate Sales Associate Post-License Course
28 Chapter 1

9. Which of the following is NOT a real 13. What term is used in timeshare
estate trade organization? ownership to refer to the right of the
a. NAR owner to use the property a specific
b. FAR period of time?
c. Florida REALTORS a. Short-term lease
d. DBPR b. Timesharing
c. Interval ownership
10. What area of real estate deals with d. Shared-time ownership
absentee owners who buy income-
producing property as an 14. Successful licensees are effective at
investment? time management. Which of the
a. Residential following would NOT be considered a
b. Agricultural good time management technique?
c. Special use a. Prepare a daily prioritized to-do list
d. Property Management b. Control distractions
c. Try not to take breaks
11. Who may use the designation of d. Multitask when possible
REALTOR when presenting
themselves to the public? 15. Social media is a free and effective
a. Anyone with a real estate license personal marketing tool for building
b. Any licensed real estate broker your image and reaching new
c. Only members of NAR prospects. Which of the following
d. Anyone performing real estate would NOT be considered a social
related services media tool?
a. Facebook
12. Effective use of technology and b. Magazine or newspaper
online tools is key to your success in c. LinkedIn
today’s Internet-based and d. Twitter
technology-oriented society. Which of
the following tools would NOT be
considered a state-of-the-art
practice?
a. MLS
b. E-mail
c. Social media
d. Paper forms

Florida Real Estate Sales Associate Post-License Course Reicon Publishing, LLC
CHAPTER

REAL ESTATE
LAWS AND RULES
OVERVIEW Holding a real estate license in the State of Florida is considered
a privilege, not a right. This privilege was earned through hard work,
dedication, and hours of studying. The license is key to earning a
living in the real estate business. In your pre-license course, you
may recall hearing that the purpose of the Florida Real Estate
Commission (FREC) is to protect the public. Obviously, they protect
the public by ensuring that those who enter the profession are
honest, trustworthy, and have demonstrated minimal competency on
an exam. Keep in mind that FREC’s job is also to protect the public
from real estate licensees.
FREC protects the public through the rules, which it oversees,
and the disciplinary process, which it administers. Attaining your real
estate license was hard work. Don’t lose it due to negligence, poor
service, or bad decision-making.
This chapter covers the highlights of the Florida Administrative
Code Chapter 61J2 (F.A.C. 61J2) and Florida Statute 475 (F.S.
475). To read the complete rule or statute, visit the DBPR’S website
at www.myfloridalicense.com/dbpr/.
Please keep in mind that the rules and statutes will change from
time-to-time. The rules and statutes referenced in this chapter were
correct at the time of this publication. Always consult the website for
the most current versions.

OBJECTIVES After completing this chapter, you should be able to do all of the
following:

• Know where to locate the key real estate license laws and
rules
• Know the requirements for license renewal
• Understand the requirements for notifying the Department of
changes
• Explain the rule for delivering a deposit to the broker
• Identify the duties associated with different brokerage
relationships
• Understand the relationships between sales associate,
broker, and principal
• Know the range of penalties for violations of real estate
license laws

Reicon Publishing, LLC 29

 30 Chapter 2

1 KNOWING THE REAL ESTATE LICENSE LAW

2
3 Real estate licensees are faced with many laws, rules, and ethical considerations while
4 offering real estate services to the public. Upon receiving your initial sales associate license,
5 you are immediately impacted by Chapters 455 and 475 of the Florida Statutes and FREC
6 rules in 61J2 of the Florida Administrative Code. As you progress in your real estate career,
7 these rules and the National Association of REALTORS (NAR) Code of Ethics continue to
8 govern all aspects of real estate practice for NAR members.
9
10 F.S. 455
11
12 Chapter 455, under Title XXXII of the Florida Statutes, titled “Business and Professional
13 Regulation: General Provisions,” is the law that regulates specific professions, including real
14 estate. The intent of the legislature is “that persons desiring to engage in any lawful
15 profession regulated by the department shall be entitled to do so as a matter of right if
16 otherwise qualified.” These professions are regulated by the Florida Legislature “only for the
17 preservation of the health, safety, and welfare of the public under the police powers of the
18 state.” [F.S. 455.201]
19 One such example is F.S. 455.227(1)(t), which requires licensees to self-report a
20 conviction, finding of guilt, plea of nolo contendere (no contest), or guilty regardless of
21 adjudication, within 30 days.
22
23 Example:
24
25 At recent Commission meetings, a number of licensees were fined for not complying
26 with this section. It is not an excuse to claim you did not know about the law. Fines are
27 still levied for violations. In one case that was presented to FREC, a licensee pled guilty
28 to health care fraud but, per advise from their attorney, did not report it to the DBPR until
29 the conviction was handed down by the court. FREC assessed an administrative penalty
30 to the licensee for not reporting within the 30-day requirement of the law after pleading
31 guilty to the charges.
32
33 Real estate licensees are responsible and are held accountable for knowing and
34 following the laws that apply to their profession in F.S. 455.
35
36 F.S. 475
37
38 Chapter 475, under Title XXXII of the Florida Statutes, titled “Real Estate Brokers, Sales
39 Associates, Schools, and Appraisers,” is the law that specifically regulates real estate
40 licensees, schools, and appraisers. Real estate licensees are most familiar with this chapter
41 of the statutes through their licensing courses.
42 Licensees should be especially familiar with the required brokerage relationship
43 disclosures defined in F.S. 475.278, “Authorized brokerage relationships; presumption of
44 transaction brokerage; required disclosures.”
45
46 Example:
47
48 Most disclosure laws came about from a class action lawsuit that took place from
49 1986 to 1992. A large real estate company in Minnesota failed to disclose to their
50 customers (the sellers) that they were representing both buyers and sellers in the same
51 transaction. The real estate company ended up paying $21,000,000 to settle the lawsuit;
52 a very costly mistake.

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 Real Estate Laws and Rules 31

1 After the lawsuit came to the attention of the real estate industry nationwide, states
2 enacted laws that require real estate licensees to disclose how they represent the public in
3 real estate transactions. Florida enacted its own law, which is enforced by auditors in the
4 field when performing office inspections. All real estate licensees, whether brokers or sales
5 associates, must be careful to ensure that these disclosures are properly made and the
6 correct documentation is contained within their files.
7 All real estate licensees, whether broker or sales associate, are responsible and are held
8 accountable for knowing and following the regulations in F.S. 475 that govern their daily
9 activities of transacting real estate.
10
11 F.A.C. 61J2
12
13 The Florida Real Estate Commission (FREC or the Commission) was formed to enforce
14 the Florida real estate license law in F.S. 475. In that effort, the Commission created rules in
15 61J2 of the Florida Administrative Code (F.A.C.). These rules serve to address the many
16 aspects of daily activities encountered by licensees. Many of these rules are discussed in
17 this chapter.
18
19 Structure of the DBPR
20
21
22
23
24
25
26
27
28
29
30
31 Other Applicable Statutes
32
33 In addition to F.S. 455, F.S. 475, and F.A.C. 61J2, there are many of the laws that must
34 be followed when engaged in real estate transactions. Examples of additional Florida
35 statutes that affect the practice of real estate include the following:
36
37 • F.S. 404.056. Requires a radon gas disclosure to prospective buyers
38 • F.S. 689.261. Requires disclosure of property tax summary to prospective buyers
39 • F.S. 689.25. Relieves licensees from the responsibility of disclosing whether a
40 property was the site of a homicide, suicide or death, or if an occupant is infected
41 with AIDS or HIV
42 • F.S. 553.996. Provides a Florida Energy-Efficiency Rating Information brochure to all
43 buyers
44 • F.S. 161.053. Concerns disclosures that pertain to Florida’s Coastal Construction
45 Control Line (CCCL)
46 • F.S. 720.401. Requires disclosure of Homeowner’s Association to buyers
47 • F.S. 718.503. Requires that buyers of condominiums be provided with specific
48 documents including a copy of the condominium governance
49
50 Federal Laws
51
52 Licensees, at times, may be responsible for the implementation of federal laws.
53 Examples of federal laws that affect the practice of real estate include the following.

Reicon Publishing, LLC Florida Real Estate Sales Associate Post-License Course
 32 Chapter 2

1 • Foreign Investment in Real Property Tax Act (FIRPTA). FIRPTA is concerned

2 with the sale of residential real property in excess of $300,000 when the property is
3 owned by a foreign investor. Buyers must withhold 10% when the amount realized is
4 above $300,000 and up to $1,000,000, and 15% when the amount is above
5 $1,000,000.
6
7 • Federal Residential Lead-Based Paint Hazard Reduction Act of 1992. This Act
8 requires a pamphlet to be given to prospective buyers or tenants in addition to
9 disclosure requirements. It also provides for a 10-day lead-based paint-testing period
10 for sales transactions.
11
12 • Federal environmental laws. Federal environmental laws include the National
13 Environmental Policy Act, the Clean Air Act, the Solid Waste Disposal Act, and the
14 Federal Water Pollution Act.
15
16 Code of Ethics
17
18 As discussed in Chapter 1, members of NAR who use the designation of REALTOR are
19 held accountable to a strict code of ethics with respect to specific duties and actions when
20 dealing with clients and customers, the public, and other real estate licensees. This code is
21 enforced by local real estate boards.
22 The NAR Code of Ethics was created to give REALTORS a higher standard of behavior
23 than simply adhering to the minimum requirements of law. These ethical standards are of
24 great importance to any licensee who seeks a successful and rewarding career in real
25 estate, where trust, honesty, reputation, and ongoing relationships are key to obtaining
26 customers and growing their business.
27
28 DISCIPLINE
29
30 Disciplinary Authority of the Commission
31
32 The Commission may deny an application for licensure or may discipline licensees for
33 violation of F.S. 475 or any rule enacted under its authority. A licensee who is found to be
34 guilty of a violation may receive one of the following disciplinary actions: issued a reprimand
35 or an administrative fine up to $5,000 per offense, placed on probation, or have their license
36 suspended for up to ten years or permanently revoked. [F.S. 475.25(1)]
37 F.S. 455 titled “The Regulation of Professions and Occupations Act” provides the legal
38 authority under which investigations and hearings are conducted. Hearing procedures are
39 established by F.S. 120, the Administrative Procedures Act. The Commission can consider
40 either mitigating or aggravating circumstances.
41 Mitigating circumstances are considered to be extenuating and reduce the degree of
42 culpability. Aggravating circumstances add to the injury caused by the act. Violations that
43 involve mitigating circumstances will generally carry a lesser penalty than those that involve
44 aggravating circumstances. If the charge against a licensee includes multiple counts or a
45 combination of violations, the Commission can impose a higher penalty. [F.S. 455.2273]
46 F.S. 455.2273 requires licensing agencies to adopt guidelines under which disciplinary
47 actions may be imposed on those persons and entities under their jurisdiction. The
48 Commission has adopted such guidelines, which are incorporated into F.A.C. 61J2-
49 24.001(3).
50 Administrative complaints must be filed within five years of the time of the act which
51 gives rise to the complaint, or within five years from discovery of the act with due diligence.

Florida Real Estate Sales Associate Post-License Course Reicon Publishing, LLC
 Real Estate Laws and Rules 33

1 The Commission must inform the Division of Florida Condominiums, Timeshares, and
2 Mobile Homes when any disciplinary action is taken against any of its licensees.
3 [F.S. 475.455]
4 The Commission is also required to report any violation of law to the proper prosecuting
5 authority for possible criminal prosecution. [F.S. 475.25(7)]
6
7 Range of Penalties [F.A.C. 61J2-24.003 and 61J2-24.002]
8
9 The purpose of the disciplinary guidelines is to give notice to licensees of the range of
10 penalties that normally would be imposed for each count during a formal or informal hearing.
11 For purposes of this rule, the order of penalties, ranging from lowest to highest, is
12 reprimand, fine, probation, suspension, and revocation or denial.
13 Disciplinary guidelines are based on a single violation. The disciplinary guidelines do not
14 preclude discipline pursuant to a stipulation, settlement agreement, or a letter of guidance.
15 The maximum penalties are revocation or denial of license. The Commission cannot deny
16 payment of a commission to a licensee.
17 Minor violations may be dealt with by issuing a citation or a notice of noncompliance.
18 Investigators for the Department are authorized to issue citations and notices of
19 noncompliance only for minor offenses specified by the Commission.
20 Most violations are identified with specific procedural actions in F.A.C. 61J2-24.
21 However, licensees are also held accountable for rules in general, and for acting ethically
22 and responsibly as illustrated by the following violations that could require a full disciplinary
23 hearing.
24
25
Rule or Statute Violation First Violation Second Violation
26 Violation of any rule or order A fine ranging from A fine ranging from
27 or provision under F.S. 475 $250 to $1,500 and $1,000 to $5,000 and
28 F.A.C 61J2-24.001(3)(f) and F.S. 455 license suspension to license suspension to
29 revocation revocation
30 Obtained a license by fraud, A fine ranging from A fine ranging from
31 misrepresentation of $250 to $1,500 and 30- $1,000 to $5,000 and
F.A.C. 61J2-24.001(3)(n) concealment day license suspension license suspension to
32
to revocation revocation
33
34 Convicted or found guilty of a A fine ranging from A fine ranging from
35 crime related to real estate $250 to $1,500 and a $1,000 to $5,000 and
61J2-24.001(3)(f) or involving moral turpitude 30-day license license suspension to
36 or fraudulent or dishonest suspension to revocation
37 dealing revocation
38 Becoming temporarily A fine ranging from A fine ranging from
39 incapacitated from acting as $250 to $1,500 and a $1,000 to $5,000 and
40 a sales associate with safety 30-day license license suspension to
41 to investors or those in a suspension to revocation
F.A.C. 61J2-24.001(3)(j) fiduciary relationship with revocation
42 F.S. 475.25(1)(i) them because of impairment
43 by drunkenness, or use of
44 drugs or temporary mental
45 derangement
46 Confinement in jail, prison, or A fine ranging from A fine ranging from
47 mental institution, or through $250 to $1,000 and $1,000 to $5,000 and
48 F.A.C. 61J2-24.001(3)(o) mental disease can no license suspension to license suspension to
49 F.S. 475.25(1)(n) longer safely be entrusted to revocation revocation
competently deal with the
50
public.
51

Reicon Publishing, LLC Florida Real Estate Sales Associate Post-License Course
 34 Chapter 2

1 LICENSE RENEWAL
2
3 This section summarizes a few of the key laws and rules related to license renewal and
4 exemptions from renewal requirements.
5
6 Post-License Requirements [F.S. 475.17(3), F.A.C. 61J2-3.020]
7
8 F.A.C. Rule 61J2-3.020 and F.S. 475.17(3) deal with the topic of completing the post-
9 license (first renewal) requirements. All licensees, whether active or inactive, must
10 satisfactorily complete a FREC-approved post-licensing course prior to their license
11 expiration date on their initial license. Any sales associate who does not successfully
12 complete the post-licensing requirements prior to their license expiry date may no longer
13 practice real estate; their initial license becomes null and void. It is very important for
14 licensees to pay attention to the first renewal requirements and deadlines to avoid losing
15 their license and employment.
16
17 • Post-license education. The post-license education may be completed by
18 classroom or distance learning. When completed by classroom, attendance is
19 mandatory. A classroom student who misses more than 10% of the instruction may
20 not take the end-of-course final examination. A student who makes up missed hours
21 must do so and take the missed final examination within 30 days of the original
22 examination. Make-up hours must consist of the original course materials that were
23 missed. [F.A.C. 61J2-3.020(8)]
24
25 o Sales associate first renewal. A sales associate must complete a 45-hour post-
26 license course prior to the expiration date of their initial license period. The
27 license of a sales associate who fails to complete this requirement will become
28 void and the licensee will be out of business. If the licensee wishes to continue in
29 the real estate profession, they are required to take the 63-hour pre-license
30 course over again and pass another state examination.
31
32 o Broker first renewal. A broker must complete one or more courses, which total
33 60 hours of post-license education prior to the expiration date of their initial
34 license period. The license of a broker who fails to complete this requirement will
35 become void and the licensee will be out of business. The licensee may revert to
36 an active sales associate by taking a 14-hour CE course during the six months
37 immediately following expiration of the broker’s license, submit proof of
38 completion, and request an active sales associate’s license. To be licensed again
39 as a broker, the licensee would be required to complete the 72-hour broker pre-
40 license educational course and pass another state examination.
41
42 • End-of-course exam. Licensees must successfully pass the post-license end-of-
43 course exam with a score of 75% or higher to receive credit for the course. Upon
44 passing the exam, licensees will receive a course completion certificate. Upon
45 successful course completion, the course provider will electronically submit the
46 continuing education results for the licensee.
47 Anyone who fails the end-of-course final exam may take an alternate final exam
48 immediately without having to take the course again. The alternate end-of-course
49 final exam must be completed within one year of taking the original exam. If the
50 licensee fails the alternate exam, they must repeat the entire course from the
51 beginning.

Florida Real Estate Sales Associate Post-License Course Reicon Publishing, LLC
 Real Estate Laws and Rules 35

1
2 Post-License (1st Renewal) Requirements
3
4 Sales Associate Broker
5 45-Hour Course 60 Hours
6 (One or More Courses)
Pass: 75% or Higher Pass: 75% or Higher
7
8
9
10 Course Completion Certificate
11 State Renewal Fee
12 No State Exam
Course Provider Reports Completion to DBPR
13
14
15
16 Continuing Education Requirements [F.S. 475.182, F.A.C. 61J2-3.009]
17
18 F.A.C. Rule 61J2-3.009 and F.S. 475.182 deal with the topic of successfully completing
19 continuing education (CE) courses to fulfill requirements for license renewal. This applies to
20 active and inactive brokers and sales associates. Any license that is not renewed at the end
21 of the license period will automatically revert to involuntarily inactive status. Careful attention
22 to the terms and details in this section will ensure that you maintain your license status
23 without unnecessary interruption.
24 Key information from the laws and rules includes:
25
26 • License renewal. Following the post-license (first renewal) period, active and
27 inactive brokers and sales associates must apply for renewal, pay a renewal fee, and
28 provide proof of satisfactory completion of an approved CE course during each
29 biennium of a license period.
30
31 • CE hours. A minimum of 14 hours of CE must be completed during each license
32 renewal period, following the first renewal period. F.A.C. 61J2-3.009 requires the 14
33 hours to include three hours of real estate core law, three hours of business ethics,
34 and eight hours of specialty courses approved by the FREC. Three hours may be
35 obtained by attending one legal agenda session of the FREC.
36
37 • Completion requirements. CE courses may be completed by classroom instruction
38 or distance learning (online).
39
40 o Classroom requirements. To complete the CE classroom course requirements,
41 licensees must attend a minimum of 90% of each of the required 14 hours. No
42 end-of-course exam is required for classroom completion.
43
44 o Distance education requirements. For distance or online versions of the 14-
45 hour CE course, licensees must achieve a score of 80% or higher on a 30-
46 question, multiple-choice, end-of-course exam. Licensees who fail the course
47 exam must take a different, alternate exam. Distance and online licensees will
48 have phone access to an instructor for inquiries related to the course or exam
49 contents.

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 36 Chapter 2

1 • Exemptions.
2
3 o Actively licensed Florida attorneys in good standing with the Florida Bar who are
4 otherwise qualified under the real estate license law are exempt from the CE
5 requirements.
6
7 o An instructor who teaches an approved CE course may use the course towards
8 the CE requirement on a classroom hour-for-hour basis.
9
10 Continuing Education (CE) Requirements
11
12 Sales Associate or Broker
13 14-Hour Course
14 Classroom: No Course Exam
15 Distance (Online): Pass 80% or Higher
16
17 Course Completion Certificate
18 State Renewal Fee
19 No State Exam
20 Course Provider Reports Completion to DBPR
21
22
23 Inactive Renewals [F.A.C. 61J2-1.014]
24
25 For renewal purposes, no distinction is made between an active and a voluntary inactive
26 license. All licensees are required to renew their license every two years.
27
28 License Reactivation [F.S. 475.183(2), F.A.C. 61J2-3.010]
29
30 A licensee who does not request renewal of their license, pay the required fees, or
31 maintain their CE requirements will have their license automatically placed in an involuntary
32 inactive status. A license may remain in an involuntary inactive status for no more than two
33 years.
34 A licensee may change the involuntary inactive status of their license to voluntary
35 inactive or active at any time during the first 12 months. To change the status, the licensee
36 must complete the required 14-hour CE course and pay an additional fee.
37 If a licensee does not change the involuntary inactive status of their license within the
38 first year, the licensee must complete a 28-hour reactivation course and pay an additional
39 fee within months 13 through 24. If the license is not brought current within two years, the
40 license automatically expires.
41 A licensee who practices real estate without a valid or current license is subject to a full
42 disciplinary hearing and one of the following range of penalties. [F.A.C. 61J2-24.001(w)
43 Disciplinary Guidelines]
44
45 • First violation. A fine ranging from $250 to $2,500 and license suspension to
46 revocation
47
48 • Second violation. A fine ranging from $1,000 to $5,000 and license suspension to
49 revocation

Florida Real Estate Sales Associate Post-License Course Reicon Publishing, LLC
 Real Estate Laws and Rules 37

1 This chart denotes the license renewal schedule.

2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24 Members of the Armed Forces and Spouses
25
26 Exemption from Licensure Renewal Provisions
27
28 A licensee who is the spouse of a member of the Armed Forces of the United States
29 shall be exempt from all licensure renewal provisions under the Rules of the Commission as
30 long as the member of the Armed Forces of the United States is on active duty and for a
31 period of two years after the member’s discharge from active duty with the Armed Forces, if
32 said licensee is not engaged in the practice of real estate brokerage activity in the private
33 sector for profit. This exemption shall only apply in cases of the licensee’s absence from the
34 state because of the member’s duties with the Armed Forces. [F.S. 455.02(1) and (2)]
35
36 Professional Licenses
37
38 The Department will issue a professional license to applicants who are or were active-
39 duty members of the armed forces of the U.S. Former military members must have received
40 an honorable discharge. A professional license will also be issued to a spouse or to one who
41 was married at any time to the member during any period of active duty, or to a surviving
42 spouse who was married to the active-duty member at the time of their death. The applicant
43 must hold a valid professional license issued by another state, the District of Columbia, any
44 possession or territory of the U.S., or any foreign jurisdiction. The initial application fee will
45 be waived. [F.S.455.02(3)(a)]

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 38 Chapter 2

1 NOTIFICATION OF CHANGES
2
3 This section summarizes a few of the key laws and rules for required reporting of
4 changes to the Department.
5
6 Change of Name [F.A.C. 61J2-9.007]
7
8 If a name or trade name is lawfully changed, a request for the reissuance of the license
9 or registration must be filed, and the license or registration must be reissued. Opening an
10 entity, corporation, or LLC to operate under is considered a change of name. Remember to
11 notify FREC before receiving payment under the business entity’s name. Sales associates
12 are not authorized to change their personal name for a fictitious name. It must be first name,
13 last name, PA, or LLC.
14
15 Change of Employer [F.S. 475.23]
16
17 When a sales associate changes employer, they must notify the Commission of the
18 change no later than 10 days after the change by using the form provided by the
19 Commission. Sales associates must be employed by a broker or owner-developer to
20 maintain an active license and practice real estate. When a sales associate changes
21 employer, they retain their active license status but could be fined if they do not notify the
22 Commission within ten days.
23 A sales associate who operates without a registered employer due to failure to renew or
24 properly register could be issued a citation and fined $500. [F.A.C. 61J2-24.002(k) Citation
25 Authority]
26
27 Change of Mailing Address [F.A.C. 61J2-10.038]
28
29 F.S. 455.275(1) defines current mailing address as the current residential address that is
30 used by a licensee to receive mail through the United States Postal Service.
31 A licensee is required to notify the Department in writing of their current mailing address
32 and any change in the current mailing address within 10 days after the change.
33 Failure to notify the Department could result in the issuance of a citation and a fine of
34 $500. [F.A.C. 61J2-24.002(z) Citation Authority]
35
36 Change in Residency [F.S. 475.180(2)(a), F.A.C. 61J2-26]
37
38 Any resident licensee who becomes a nonresident must notify the Commission within 60
39 days of the change in residency and comply with nonresident requirements. Failure to notify
40 and comply is a violation of the license law, subject to penalties.
41
42 Reporting Criminal Convictions [F.S. 455.227(1)(t)]
43
44 As discussed earlier in this chapter, Florida statutes require that a licensee report to the
45 Commission within 30 days after being convicted, found guilty, or entered a plea of nolo
46 contendere (no contest) or guilty to a crime in any jurisdiction regardless of adjudication.
47 Failure to do so could result in a full disciplinary hearing and one of the following range
48 of penalties. [F.A.C. 61J2-24.001(nn) Disciplinary Guidelines]
49
50 • First violation. A fine ranging from $250 to $1,000 and license suspension to
51 revocation

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 Real Estate Laws and Rules 39

1 • Second violation. A fine ranging from $1,000 to $5,000 and license suspension to
2 revocation
3
4 BUSINESS OPERATIONS
5
6 This section summarizes a few of the key laws and rules related to the day-to-day
7 business operations performed by sales associates.
8
9 Advertising [F.A.C. 61J2-10.025]
10
11 All advertising must be in a manner in which reasonable persons would know they are
12 dealing with a real estate licensee. Advertisements placed by sales associates must include
13 the licensed name of the brokerage firm under which the sales associate is employed. When
14 the licensee’s personal name appears in the advertisement, at the very least the licensee’s
15 last name must be used in the manner in which it is registered with the Commission.
16 When advertising on a website, the brokerage firm name must be placed adjacent to,
17 immediately above, or below the point of contact information. Point of contact information
18 refers to such information as mailing address, physical street address, e-mail address,
19 telephone number, or fax number.
20 Advertisements may not be fraudulent, false, deceptive, or misleading. Placing such an
21 ad could result in a full disciplinary hearing and one of the following range of penalties.
22 [F.A.C. 61J2-24.001(d) Disciplinary Guidelines]
23
24 • First violation. A fine ranging from $250 to $1,000 and 30 to 90-day license
25 suspension
26
27 • Second violation. A fine ranging from $1,000 to $5,000 and 90-day license
28 suspension to revocation
29
30 Possible lesser penalties include:
31
32 • Advertising false, inaccurate, misleading, or exaggerated information could result in
33 the issuance of a citation and a fine of $500. [F.A.C. 61J2-24.002(o)]
34
35 • Advertising in a manner in which a reasonable person would not know one is dealing
36 with a real estate licensee or brokerage, failing to include the registered name of the
37 brokerage firm in the advertisement, or failure to use the licensee’s last name, as
38 registered with the Commission in an advertisement could also result in the issuance
39 of a citation and a fine of $500. [F.A.C. 61J2-24.002(u)]
40
41 Use of Association Names [F.A.C. 61J2-10.027]
42
43 A licensee may not use an identification or designation of any association or
44 organization having to do with real estate unless they are entitled to do so. Using the name
45 or identification of an association or organization when the licensee is not in good standing
46 or otherwise not entitled could result in the issuance of a citation and a fine of $300.
47 [F.A.C. 61J2-24.002(v)]
48
49 Kickbacks or Rebates [F.A.C. 61J2-10.028]
50
51 A real estate licensee may not receive, or agree to receive, directly or indirectly, anything
52 of value in exchange for the placement of, or favor in, any business transaction in
53 connection with a real estate transaction.
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 40 Chapter 2

1 Exceptions
2
3 The exception is when a licensee performs a service that entitles them to any such fee,
4 has the appropriate license to perform the service (if one is required), and discloses and
5 receives consent from all interested parties regarding the fee payment. A licensee could
6 also accept a legal kickback fee not involving a service of the settlement if the kickback is
7 disclosed to all interested parties. It is not considered a violation of F.S. 475 if a licensee
8 shares brokerage compensation with a party to the real estate transaction with full
9 disclosure to all interested parties.
10
11 Handling Deposits [F.A.C. 61J2-14.009]
12
13 A deposit may be in the form of money, personal property, real property, or anything of
14 value that can be converted to cash. Typically, the deposit is intended to become a partial
15 payment of the purchase price at closing.
16 Postdated checks are considered promissory notes and can be accepted as earnest
17 money with the seller’s approval. [F.A.C. 61J2-14.008(1)(a)]
18 A sales associate who receives a deposit must deliver it to the broker or employer no
19 later than the end of the next business day following receipt of the item to be deposited.
20 Saturday, Sundays, and legal holidays are not considered business days.
21 Receipt by a sales associate constitutes receipt by the broker. Failure of a sales
22 associate to place money to be escrowed with their employer could result in a full
23 disciplinary hearing and one of the following range of penalties. [F.A.C. 61J2-24.001(l)
24 Disciplinary Guidelines]
25
26 • First violation. A fine ranging from $250 to $1,000 and 30-day license suspension to
27 revocation
28
29 • Second violation. A fine ranging from $1,000 to $5,000 and license suspension to
30 revocation
31
32 Rental Information [F.A.C. 61J2-10.030]
33
34 If a broker or sales associate attempts to negotiate a rental, or furnishes rental
35 information to a prospective tenant for a fee paid by the tenant, the licensee must provide
36 the prospective tenant with a written contract that reads as follows:
37
38 If the rental information provided under this contract is not current or accurate in
39 any material aspect, you may demand within 30 days of this contract date a
40 return of your full fee paid. If you do not obtain a rental, you are entitled to
41 receive a return of 75% of the fee paid, if you make such demand within 30
42 days of this contract date.
43
44 Two different situations might arise:
45
46 1. The tenant applicant does not like any of the rental properties available. In this case,
47 they may request a refund of 75% of any fee paid.
48
49 2. The tenant applicant was misled or deceived concerning the terms or availability of
50 the property offered. If the broker materially misrepresented what was offered, the
51 tenant applicant can request a 100% refund of any fee paid.
52
53 In either case, the request must be made within 30 days of the contract date.
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 Real Estate Laws and Rules 41

1 The form of the contract or receipt agreement must be as prescribed by the Commission
2 as shown above. Each rental data company must furnish the Department with a copy of its
3 current contract or receipt agreement within 30 days prior to use.
4 Rental information violations are considered a misdemeanor of the first degree. In
5 addition, the license of a broker or sales associate who is found guilty of a rental information
6 violation is subject to disciplinary action by the Commission.
7 [F.S. 475.453, F.A.C. 61J2-10.030]
8
9 Timeshare Listing Agreements [F.A.C. 61J2-23.001(1)(a)]
10
11 Whenever a licensee lists a timeshare resale unit, the contract must contain specific
12 language related to common area expenses, ad valorem taxes, and other ownership
13 charges. The disclosure that follows must appear just above the space reserved for the
14 signature(s) of the buyer in conspicuous type as shown below.
15
16 There is no guarantee that your timeshare period can be sold at any particular
17 price or within any particular period-of-time.
18
19
20 Timeshare Purchase and Sale Agreements [F.A.C. 61J2-23.002(1)]
21
22 Whenever a licensee negotiates a contract for the resale of a timeshare resale unit, the
23 contract must contain specific language related to common area expenses, ad valorem
24 taxes, and other ownership charges. The disclosure that follows must appear just above the
25 space reserved for the signature(s) of the purchaser in capitalized ten-point, bold type or
26 larger.
27
28
29 THE CURRENT YEAR’S ASSESSMENT FOR COMMON EXPENSES ALLOCABLE
30 TO THE TIMESHARE PERIOD YOU ARE PURCHASING IS $__________. THIS
31 ASSESSMENT, WHICH MAY BE INCREASED FROM TIME-TO-TIME BY THE
32 MANAGING ENTITY OF THE TIMESHARE PLAN, IS PAYABLE IN FULL EACH
33 YEAR ON OR BEFORE _________. THIS ASSESSMENT (INCLUDES) (DOES
34 NOT INCLUDE) YEARLY AD VALOREM REAL ESTATE TAXES, WHICH (ARE)
35 (ARE NOT) BILLED AND COLLECTED SEPARATELY.
36
37 If ad valorem real property taxes are not included in the current year’s assessment for
38 common expenses, the following statement must be included:
39
40 THE MOST RECENT ANNUAL ASSESSMENT FOR AD VALOREM REAL ESTATE
41 TAXES FOR THE TIMESHARE PERIOD YOU ARE PURCHASING IS
42 $__________. EACH OWNER IS PERSONALLY LIABLE FOR THE PAYMENT OF
43 THEIR ASSESSMENT FOR COMMON EXPENSES, AND FAILURE TO TIMELY
44 PAY THESE ASSESSMENTS MAY RESULT IN RESTRICTION OR LOSS OF
45 YOUR USE AND/OR OWNERSHIP RIGHTS.
46

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 42 Chapter 2

1 A licensee who fails to disclose all material aspects of the resale of timeshare period(s)
2 or timeshare plans and the rights and obligations of both buyer and seller could be subject
3 to a full disciplinary hearing and one of the following range of penalties.
4 [F.A.C. 61J2-24.001(hh) Disciplinary Guidelines]
5
6 • First violation. A fine ranging from $250 to $1,000 and license suspension
7
8 • Second violation. A fine ranging from $1,000 to $5,000 and license suspension to
9 revocation
10
11 EMPLOYMENT AND BROKERAGE RELATIONSHIPS
12
13 Employment by More than One Entity [F.S. 475.215(2), F.A.C. 61J2-6.006]
14
15 A sales associate may only be employed by one registered employer at any one time.
16
17 Collect Money Only from Employer
18
19 A sales associate may not collect money in connection with a real estate transaction
20 except in the name of the employer.
21 A sales associate is employed under a broker or an owner-developer, not by the
22 principal (or customer). The broker is employed by and represents the principal and has a
23 fiduciary relationship with them. Money received as compensation for real estate
24 transactions are paid to the broker, not the sales associate.
25 A sales associate is an agent of the employing broker and acts on behalf of the broker. A
26 sales associate receives compensation only from their employing broker.
27 A sales associate can, however, be paid a portion of a commission by a closing agent if
28 such instructions have been provided in writing by the broker.
29
30 Single Agency Relationship
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46 License Status of Officers and Directors [F.A.C. 61J2-5.016]
47
48 A sales associate may not be registered as an officer or director of a brokerage
49 corporation, or general partner of a brokerage partnership. A sales associate who serves as
50 an officer or director of a registered brokerage corporation could be issued a citation and
51 receive a fine of $200. [F.A.C. 61J2-24.002(s)]

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 Real Estate Laws and Rules 43

1 Brokerage Relationship Duties [F.S. 475.278]

2
3 A potential customer can choose representation and establish an authorized brokerage
4 relationship by electing to be represented as a transaction broker, single agent, or a no
5 brokerage relationship. Licensees are held accountable for performing specific duties
6 according to the type of relationship, as summarized in the table below.
7
8 Summary of Brokerage Relationship Duties (Residential Sales)
9 Duty No Brokerage Transaction Broker Single Agent
10 Deal honestly and fairly ✓ ✓ ✓
11 Account for all funds ✓ ✓ ✓
12 Disclose all known facts that affect
13 the value of residential property ✓ ✓ ✓
14 Skill, care, and diligence ✓ ✓
15 Present all offers and counteroffers ✓ ✓
16 Limited confidentiality ✓
17 Additional agreed duties ✓
18 Confidentiality ✓
19 Obedience ✓
20 Loyalty ✓
21 Full disclosure ✓
22
23 Brokerage Relationship Disclosures [F.S. 475.278]
24
25 A broker may be employed by a member of the public in one of the following three
26 different relationships:
27
28 • Transaction broker
29 • Single agent
30 • No brokerage relationship
31
32 A written disclosure that specifies the nature of the relationship a broker has with a
33 member of the public and the duties inherent in the relationship is required in single agency
34 and no brokerage relationships. (See the end of the chapter for sample disclosures.) Written
35 disclosures are not required when acting in the capacity of a transaction broker or in
36 nonresidential real estate transactions. Licensees are not required to disclose the duties
37 associated with transaction brokerage.
38 For first time violations only, failure to give the appropriate disclosure or notice at the
39 appropriate time could result in the issuance of a citation and a fine of $300.
40 [F.A.C. 61J2-24.002(i)]
41 Regardless of the relationship that is established, sellers of residential property, along
42 with licensees, must disclose all known facts that materially affect the value of residential
43 real property and are not readily observable to the buyer.
44
45 Disclosure Exemptions [F.S. 475.278(5)(b)]
46
47 Disclosure requirements do not apply when a licensee knows that a transaction broker
48 or a single agent is representing a potential seller or buyer. Disclosure is not required when
49 an owner is selling new residential construction units built by the developer in which the
50 circumstances or settings should reasonably inform the potential buyer that the licensee is

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 44 Chapter 2

1 acting on behalf of the owner. This may occur when the office location, signage, placards, or
2 a name badge would indicate the licensee is acting in such a capacity.
3
4 The following situations are exempt from the disclosure requirements.
5
6 • Nonresidential transactions
7 • The rental or lease of real property, unless an option to purchase all or a portion of
8 the property improved with four or fewer units is given
9 • A bona fide open house or model home showing that does not involve eliciting
10 confidential information, the execution of a contractual offer or an agreement for
11 representation, or negotiations concerning price terms, or conditions of a potential
12 sale
13 • Unanticipated casual conversations between a licensee and a seller or buyer which
14 do not involve eliciting confidential information, the execution of a contractual offer or
15 agreement for representation, or negotiations concerning price, terms, or conditions
16 of a potential sale
17 • Responding to general factual questions from a potential buyer or seller concerning
18 properties that have been advertised for sale
19 • Situations in which a licensee’s communications with a potential buyer or seller are
20 limited to providing general factual information, oral or written, about the
21 qualifications, background, and services of the licensee or the licensee’s brokerage
22 firm
23 • Auctions
24 • Appraisals
25 • Dispositions of any interest in business enterprises or business opportunities, except
26 for property with four or fewer residential units
27
28 Illegal Dual Agency [F.S. 475.01(k)]
29
30 An agency relationship is created when a broker accepts employment under a single
31 agency agreement. A broker may represent a seller, buyer, property owner, or tenant. Any
32 attempt to represent both parties in a transaction would create an illegal dual agency.
33
34 Consent to Transition to Transaction Broker [F.S. 475.278(2)(b)(2)]
35
36 Transition from one role to another may become necessary when a broker has been
37 employed as a single agent by a seller and is subsequently employed by the buyer as a
38 single agent. If the buyer becomes interested in the seller’s property, the broker would have
39 two principals, which would be an illegal dual agency. A broker can both list and sell a
40 property in what is called an in-house transaction. The broker, however, cannot be an agent
41 for both parties. Transition from single agent to transaction broker resolves this conflict.
42 A single agent relationship may be changed to a transaction broker relationship at any
43 time during the relationship between an agent and principal, provided the agent gives the
44 written disclosure required and the principal gives their written consent before a change in
45 the relationship occurs. This transition disclosure must be in writing and submitted to the
46 principal as a separate and distinct document or included as part of other documents such
47 as a listing agreement or other agreement for representation. If the principal does not initial
48 or sign the form, thereby refusing to give their consent to the broker’s transition, the broker
49 must continue to act as a single agent. (See the end of this chapter for a sample disclosure.)

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 Real Estate Laws and Rules 45

1 Each party must understand the role of the broker. A party is entitled to a different level
2 of representation when the broker is a single agent than when the broker is a transaction
3 broker. When in a transaction broker relationship, the principal agrees to become a
4 customer rather than a principal. It is not necessary for a licensee to remind the parties at
5 the time of the transition from a single agent relationship to a transaction broker relationship.
6 However, a verbal disclosure at the point of the transition is recommended to avoid possible
7 problems later.
8 Caution, again, is necessary when making the transition from single agent to transaction
9 broker. A single agent who has come into possession of confidential information may not
10 use or disclose this information to anyone for the rest of their life. Transition from one role to
11 another does not remove the confidentiality created under the fiduciary relationship that was
12 established in the original single agency relationship.
13
14 PROPERTY MANAGEMENT VIOLATIONS
15
16 The Commission deals with an increasing number of cases related to property
17 management violations. With respect to sales associates, these cases typically involve
18 licensees who act as investors or beyond the scope of a sales associate.
19
20 • Licensee acting in the capacity of an investor. If a licensee acts as an investor,
21 the licensee must ensure that all parties are aware that the licensee is not acting as
22 a real estate licensee.
23
24 Example: The Commission has heard cases where an individual who was acting
25 as an investor gave out business cards and used stationary indicating that they
26 were a licensee. The Commission ruled in these cases that the individual was in
27 fact acting as a licensee, not an investor.
28
29 A licensee can act as a private investor. However, if the licensee leads the public
30 to believe that they are dealing in a real estate brokerage transaction, and the other
31 party is damaged or harmed, the other party may be entitled to collect from the Real
32 Estate Recovery Fund, resulting an automatic suspension to the licensee.
33
34 • Licensee acting beyond the scope of a sales associate. A sales associate may
35 only receive compensation from their employing broker, and not from any other
36 source in regards to the transaction of real estate.
37
38 Example: The Commission has heard cases where the sales associate’s
39 employing broker does not handle property management, so the sales associate
40 set up their own company to handle property management. In these cases, the
41 sales associate was found guilty of operating as a broker while licensed as a
42 sales associate.
43
44 A licensee who practices beyond their scope as a sales associate could be
45 subject to a full disciplinary hearing and one of the following range of penalties.
46 [F.A.C. 61J2-24.001(x)]
47
48 • First violation. A fine ranging from $250 to $1,000 and license suspension to
49 revocation
50
51 • Second violation. A fine ranging from $1,000 to $5,000 and license suspension
52 to revocation

Reicon Publishing, LLC Florida Real Estate Sales Associate Post-License Course
 46 Chapter 2

1 REQUIRED DISCLOSURE FORMS

2
3 The examples of the required disclosure forms used in order to comply with the
4 Brokerage Relationship Disclosure Act are shown below.
5
6 SINGLE AGENT NOTICE
7
8 FLORIDA LAW REQUIRES THAT REAL ESTATE LICENSEES OPERATING AS
9 SINGLE AGENTS DISCLOSE TO BUYERS AND SELLERS THEIR DUTIES.
10
11 As a single agent, (Insert the name of the Real Estate Entity) and its Associates owe
12 to you the following duties:
13
14 1. Dealing honestly and fairly;
15 2. Loyalty;
16 3. Confidentiality;
17 4. Obedience;
18 5. Full disclosure;
19 6. Accounting for all funds;
20 7. Skill, care, and diligence in the transaction;
21 8. Presenting all offers and counteroffers in a timely manner, unless a party has
22 previously directed the licensee otherwise in writing; and
23 9. Disclosing all known facts that materially affect the value of residential real
24 property and are not readily observable.
25
26
27
28 Date Signature
29
30
31
32
33
34 NO BROKERAGE RELATIONSHIP NOTICE
35
36 FLORIDA LAW REQUIRES THAT REAL ESTATE LICENSEES WHO HAVE NO
37 BROKERAGE RELATIONSHIP WITH A POTENTIAL SELLER OR BUYER
38 DISCLOSE THEIR DUTIES TO SELLERS AND BUYERS.
39
40 As a real estate licensee who has no brokerage relationship with you, (Insert the
41 name of the Real Estate Entity) and its Associates owe to you the following duties:
42
43 1. Dealing honestly and fairly;
44 2. Disclosing all known facts that materially affect the value of residential real
45 property which are not readily observable to the buyer; and
46 3. Accounting for all funds entrusted to the licensee.
47
48
49
50 Date Signature
51

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 Real Estate Laws and Rules 47

1 CONSENT TO TRANSITION TO
2 TRANSACTION BROKER
3
4 FLORIDA LAW ALLOWS REAL ESTATE LICENSEES WHO REPRESENT A
5 BUYER OR SELLER AS A SINGLE AGENT TO CHANGE FROM A SINGLE
6 AGENT RELATIONSHIP TO A TRANSACTION BROKERAGE RELATIONSHIP IN
7 ORDER FOR THE LICENSEE TO ASSIST BOTH PARTIES IN A REAL ESTATE
8 TRANSACTION BY PROVIDING A LIMITED FORM OF REPRESENTATION TO
9 BOTH THE BUYER AND THE SELLER. THIS CHANGE IN RELATIONSHIP
10 CANNOT OCCUR WITHOUT YOUR PRIOR WRITTEN CONSENT.
11
12 As a transaction broker, (Insert the name of the Real Estate Firm) and its Associates
13 provide to you a limited form of representation that includes the following duties:
14
15 1. Dealing honestly and fairly;
16 2. Accounting for all funds;
17 3. Using skill, care, and diligence in the transaction;
18 4. Disclosing all known facts that materially affect the value of residential real
19 property and are not readily observable to the buyer;
20 5. Presenting all offers and counteroffers in a timely manner, unless a party has
21 previously directed the licensee otherwise in writing;
22 6. Limited confidentiality, unless waived in writing by a party. This limited
23 confidentiality will prevent disclosure that the seller will accept a price less
24 than the asking or listed price, that the buyer will pay a price greater than the
25 price submitted in a written offer, of the motivation of any party for selling or
26 buying property, that a seller or buyer will agree to financing terms other than
27 those offered, or of any other information requested by a party to remain
28 confidential; and
29 7. Any additional duties that are entered into by this or by separate written
30 agreement.
31
32 Limited representation means that a buyer or seller is not responsible for the acts of
33 the licensee. Additionally, parties are giving up their rights to the undivided loyalty of
34 the licensee. This aspect of limited representation allows a licensee to facilitate a real
35 estate transaction by assisting both the buyer and the seller, but a licensee will not
36 work to represent one party to the detriment of the other party when acting as a
37 transaction broker to both parties.
38
39
40 I agree that my agent may assume the role and duties of a
41 transaction broker. (Must be initialed or signed.)
42
43

Reicon Publishing, LLC Florida Real Estate Sales Associate Post-License Course
48 Chapter 2

CHAPTER 2 REVIEW QUESTIONS

1. Chapter of the Florida Statutes is the law that regulates specific professions,
including real estate.

2. Chapter of the Florida Statutes is the law that specifically regulates real estate
licensees, schools, and appraisers.

3. The Florida Real Estate Commission (FREC) created rules in of the

Florida Administrative Code in order to enforce the Florida real estate license law.

4. is a Federal law that is concerned with the sale of residential real

property in excess of $300,000 when the property is owned by a .

5. The was created to give REALTORS a higher standard of

behavior.

6. The Commission may deny an application for licensure or may discipline licensees for
violation of F.S. or any rule enacted under its authority.

7. For purposes of F.A.C. 61J2, the order of penalties, ranging from lowest to highest, is
, , , , and .

8. All sales associates, whether active or inactive, must satisfactorily complete a FREC-
approved, course containing hours of education prior to
their license expiration date on their initial license.

9. A minimum of hours of CE must be completed during each license renewal

period, following the first renewal period.

10. When a sales associate changes employers, they must notify the Commission of the
change no later than after the change.

11. Florida statutes require that a licensee report to the Commission within 30 days after a
licensee is , , or or
to a crime in any jurisdiction regardless of adjudication.

12. Advertisements may not be , , , or .

13. A sales associate who receives a deposit must deliver it to the broker or employer no
later than the following receipt of the item to be
deposited.

14. A sales associate may only be employed by at any

one time.

15. Written disclosure, which specifies the nature of the relationship a broker has with a
member of the public and the duties inherent in the relationship, is required in
and relationships.

Florida Real Estate Sales Associate Post-License Course Reicon Publishing, LLC
 Real Estate Laws and Rules 49

CHAPTER 2 PRACTICE EXAM

1. Which entity is NOT regulated by F.S. 4. All real estate licensees, whether in a
475? no brokerage, transaction broker, or
a. Building codes single agent relationship, are
b. Real estate licensees accountable for performing which
c. Real estate schools duties?
d. Appraisers a. Dealing honestly and fairly, limited
confidentiality, and full disclosure
2. Upon failing to complete the 14-hour b. Presenting all offers and
renewal requirements prior to license counteroffers, obedience, and limited
expiry, a licensee may change the confidentiality
involuntary inactive status of their c. Dealing honestly and fairly,
license to voluntary inactive or active accounting for all funds, and
during the first 12 months. What must disclosing all known material facts
a licensee do to accomplish this? d. Obedience, loyalty, and full
a. Complete a 28-hour reactivation disclosure
course
b. Complete a 63-hour post-license 5. Minor violations of F.S. 475 or F.A.C.
course 61J2 would typically result in which
c. Submit a new application to the disciplinary action?
DBPR a. A citation or notice of noncompliance
d. Complete a 14-hour CE course and b. Probation
pay a fee c. License suspension
d. License revocation
3. Which statement correctly describes
the role of the sales associates? 6. A sales associate who fails to
a. A sales associate represents the complete the post-license
principal in a real estate transaction. requirements by the renewal deadline
b. A sales associate is an agent of and may no longer practice real estate.
acts on behalf of their employing What action must be taken to regain
broker. their license?
c. A sales associate is employed by a. Complete the 28-hour reactivation
multiple brokers to transact real education within 12 months and pay
estate. a fee
d. A sales associate receives b. Complete the 28-hour reactivation
compensation directly from the education within 24 months and pay
customer in a real estate transaction. a fee
c. Repeat the 63-hour pre-license
education and submit a new license
application package
d. Repeat the 45-hour post-license
education

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50 Chapter 2

7. When a licensee changes their 12. Florida statutes require that a

employer, they must notify the DBPR licensee report to the Commission
within how many days? within 30 days after being convicted,
a. 7 found guilty, or entering no contest or
b. 10 guilty to a crime. The penalty
c. 30 resulting from a first violation of this
d. 60 law is NOT likely to include which of
the following disciplinary actions?
8. A licensee is representing both the a. A fine ranging from $250 to $1,000
buyer and the seller in the same b. Probation
transaction. What is this called? c. License suspension
a. Good business d. A full disciplinary hearing
b. Profitable transaction
c. Illegal dual agency 13. A sales associate receives a deposit
d. Multiple customer transaction check from a buyer on Tuesday.
When must the sales associate
9. If a licensee advertises false, deliver the deposit to the broker?
inaccurate, misleading, or a. When the seller accepts the contract
exaggerated information, in addition b. When the buyer says the check is
to being issued a citation, how much good and the funds are available
would they likely be fined? c. By the end of the business day on
a. $500 Friday
b. $5,000 d. By the end of business day on
c. $1,000 Wednesday
d. $1,500
14. Who is the sales associate’s
10. What are the unique duties of a employer?
licensee in a single agency a. Buyer
relationship? b. Seller
a. Dealing honestly and fairly, c. Customer
accounting for all funds, and d. Broker
disclosing all known facts
b. Presenting all offers and 15. A licensee is required to provide
counteroffers, limited confidentiality written disclosure, which specifies
c. Confidentiality, obedience, loyalty, the nature of the relationship they
and full disclosure have with a member of the public.
d. Using skill, care, and diligence Which relationship does not require
such disclosure?
11. A licensee attempts to negotiate a a. Single agent
rental for a fee paid by the tenant. If b. No brokerage relationship
the tenant applicant does not like any c. Transaction broker
of the rental properties available, d. Individual
what are they entitled to request with
30 days of the contract date?
a. 100% refund of the fee paid
b. 75% refund of the fee paid
c. One month’s rent in a comparable
apartment
d. Nothing. There is no refund.

Florida Real Estate Sales Associate Post-License Course Reicon Publishing, LLC
CHAPTER

EVALUATING AND
PRICING PROPERTY
OVERVIEW The question of what a property is worth is a key factor in real
estate property decisions. Sellers want to know what their property is
worth. Buyers want to know how a potential purchase compares to
other properties on the market. Lenders are concerned with the
value of a property as security for a loan. Others involved in real
estate, such as tax assessors and insurance agents need
information about a property’s value to assess taxes and insurance
needs.
Accurately estimating a property’s value requires an
understanding of numerous factors that affect value. Real estate
licensees should have a solid understanding of the process
appraisers use to arrive at a property’s value. You should also have
a solid background in the principles of researching and completing a
comparative market analysis (CMA) of a parcel of real property.
This chapter provides information about the different types of
property value, three methods that appraisers use to estimate the
value of a property, and the steps you must take to complete a CMA.

OBJECTIVES After completing this chapter, you should be able to do all of the
following:

• Know when an appraisal is required

• Distinguish between an appraisal, a comparative market
analysis (CMA), and a broker’s price opinion (BPO)
• Identify the different types of value
• Identify the different appraisal principles
• Discuss the steps in the appraisal process
• Describe the three approaches to estimating value used by
appraisers
• Know the steps for performing a CMA
• Identify the specific information needed when performing a
CMA

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 52 Chapter 3

1 APPRAISAL REGULATION
2
3 In the early 1980s, banks and savings and loan associations in the United States went
4 through a period of instability, with many institutions failing financially. Although there were
5 many reasons associated with these failures, part of the responsibility was placed on the
6 appraisal profession for preparing faulty appraisals. Congress subsequently passed
7 sweeping legislation designed to correct many of the problems discovered during hearings
8 into the collapse of lending institutions in the United States. This legislation was titled the
9 Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA).
10 Title XI of FIRREA was directed toward the appraisal profession and required that
11 appraisals utilized by federally regulated lenders in federally related transactions be
12 developed and reported in conformity with the Uniform Standards of Professional Appraisal
13 Practice (USPAP).
14 A federally related transaction is any real estate related financial transaction that a
15 Federal Financial Institution Regulatory Agency (FFIRA) has either contracted for or
16 regulates and requires the services of an appraiser. Appraisal reports involving a federally
17 related transaction must be prepared by a state certified appraiser.
18 All appraisals used in a federally related transaction must be prepared in compliance
19 with USPAP by appraisers who are registered, licensed, or certified under Part II of F.S. 475.
20 The Florida Real Estate Appraisal Board (FREAB) administers Part II of F.S. 475.
21
22 APPRAISALS VS. CMAS
23
24 As introduced in Chapter 1, appraising is the process of developing an opinion of value
25 of real property. An appraiser conducts an independent, impartial, and objective analysis
26 based on research and data pertaining to the value of the specified real property. Appraisal
27 fees are based on the time, effort, and expense involved for completion of the assignment,
28 not on the value of the property.
29 A variety of situations may call for an appraisal. Lenders may require an appraisal to
30 determine whether the value of property being used as collateral for a loan is adequate.
31 Situations such as federal income tax claims, federal estate taxes, real estate tax
32 assessments, eminent domain, investment planning, insurance claims, and many other
33 circumstances may require an appraisal or some other type of valuation service.
34 Real estate licensees may perform an appraisal under the real estate license law if the
35 valuation is not to be used in a federally related transaction. However, real estate brokers
36 and sales associates who offer opinions of value of real property usually do not perform an
37 appraisal when arriving at an estimate of value. Instead, they prepare what is known as a
38 comparative market analysis (CMA), which is a value estimate based on recent sales of
39 similar properties in the same neighborhood. The comparative market analysis, frequently
40 called a CMA, utilizes many of the appraisal concepts. However, a CMA may not be referred
41 to as an appraisal.
42
43 VALUATION
44
45 Valuation is the process of determining the value of real property as of a given date.
46 Value is defined by USPAP as an opinion of the worth of a property at a given time in
47 accordance with a specific definition of value. It is the monetary relationship between
48 properties and those who buy, sell, or use those properties. In appraisal practice, value must
49 always be qualified (e.g., market value, liquidation value, or investment value).
50 There are a number of different types of value. An appraisal or a CMA will reflect the
51 type of value that is sought by the client.

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 Evaluating and Pricing Property 53

1 Types of Value
2
3 The more common types of value are as follows:
4
5 • Assessed value is the value assigned by the property appraiser for ad valorem tax
6 purposes.
7
8 • Investment value is the value of a particular property to a particular investor.
9 Potential purchasers of income-producing properties commonly request investment
10 value appraisals. Investment value is the highest price an investor will pay for a
11 property and the lowest price the seller will accept. Investment value is the value to a
12 specific individual, while market value is the value in a typical transaction to a typical
13 buyer.
14
15 • Insured value is the face amount that a casualty or hazard insurance policy will pay
16 in the event that a property is judged unusable.
17
18 • Liquidation value is the amount that remains after all assets of a business have
19 been sold in a hurried, but not forced, sale and all liabilities have been paid. It is the
20 value of a failing business that is not expected to continue. It can also be used to
21 estimate the minimum value of a profitable business. Liquidation value is typically
22 estimated for financial institutions that are considering foreclosure on a property.
23
24 • Market value is the most often estimated value in real estate valuation. Market value
25 is the amount that should be paid for a property, but not necessarily the amount
26 which is asked or actually paid. Market value can be higher or lower than the cost or
27 price.
28 The definition below, taken from USPAP1, is the most widely accepted definition
29 and is the basis for most appraisal reports.
30
31 “Market value is a type of value, stated as an opinion, that presumes
32 the transfer of a property (i.e., a right of ownership or a bundle of such
33 rights), as of a certain date, under specific conditions set forth in the
34 definition of the term identified by the appraiser as applicable in an
35 appraisal.
36 Comment: Forming an opinion of market value is the purpose of many
37 real property appraisal assignments, particularly when the client’s
38 intended use includes more than one intended user. The conditions
39 included in market value definitions establish market perspectives for
40 development of the opinion. These conditions may vary from definition to
41 definition but generally fall into three categories:
42
43 1. The relationship, knowledge, and motivation of the parties (i.e., seller
44 and buyer);
45 2. The terms of sale (e.g., cash, cash equivalent, or other terms); and
46 3. The conditions of sale (e.g., exposure in a competitive market for a
47 reasonable time prior to sale).”

1
USPAP 2014-2015 Edition, The Appraisal Foundation

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 54 Chapter 3

1 • Use value (also known as value-in-use) of a property is the value the property holds
2 for the owner. Several factors contribute to this value, such as:
3
4 o Income. Property can produce income through leases. This is important because
5 investors will pay for the income flow that ownership brings them.
6
7 o Appreciation. Property generally increases in value over time. This is another
8 investment benefit for an owner.
9
10 o Use. The specific use of a property (residential, agricultural, commercial, or
11 recreational) determines its value and its benefits.
12
13 o Tax benefits. Property ownership could yield benefits in capital gains, tax losses,
14 tax deferrals, and depreciation for an owner.
15
16 Price vs. Value
17
18 As opposed to value, price is the amount, which is actually paid in a real estate
19 transaction. It is not necessarily the asking amount or amount offered, and may not
20 represent the actual market value of the property. It may be more than, or less than, the
21 market value. It is, nonetheless, the amount that the buyer is willing to pay and the amount
22 the seller is willing to accept.
23
24 Example:
25
26 If a seller is forced to sell because of a job transfer, the property could sell well below
27 market value. On the other hand, a property could sell above market value if the price of
28 the property includes personal property, or if a buyer is willing to pay more for the
29 property based upon some personal special circumstance.
30
31 Appraisal Principles
32
33 Many factors can influence the value of property. Appraisal principles are the rules that
34 govern the formation of value and help to explain how and why values change in the market.
35 Appraisers use them to assist in arriving at their value conclusion.
36
37 • Principle of anticipation. The principle of anticipation states that the value of a
38 property today is the sum of its future benefits. When a potential buyer considers the
39 purchase of a property, the benefits it will provide during that owner’s period of
40 ownership forms the basis for the decision to buy, and at what price. Value today is
41 measured in terms of future benefits. This principle is particularly visible in the
42 purchase of income-producing real estate where present dollars are paid in
43 exchange for the right to receive future dollars.
44
45 Example:
46
47 A buyer hears that the property down the street may become a shopping
48 mall. Is that a benefit or a disadvantage? It may depend on the buyer’s viewpoint.
49
50 • Principle of change. The principle of change states that circumstances can cause
51 changes to occur in the market, which in turn may affect the value of real estate. An
52 appraisal is made as of a specific date in order to take into account the market forces
53 that influence value at that point in time.

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 Evaluating and Pricing Property 55

1 An appraiser needs to keep abreast of the following types of changes that can
2 have an effect on the value of real estate:
3
4 o Volume of inventory o Interest rates
5 o Rate of sale or time on the o Availability of financing
6 market o Unemployment rates
7 o Forces of supply and demand
8
9 Example:
10
11 Using our shopping mall example from above, is the construction of a mall a
12 benefit or a detriment to the property’s value? Again, it may depend on the
13 buyer’s viewpoint.
14
15 • Principle of competition. The principle of competition recognizes that sellers
16 compete with other sellers, and buyers compete with other buyers. This principle
17 focuses on the effect of changes in supply and demand. Factors affecting supply and
18 demand include:
19
20 o The number of properties available in an area
21 o Property prices
22 o Number of prospective buyers
23 o Price buyers are willing to pay
24
25 Example:
26
27 If there is only one home available in a highly desirable neighborhood, that
28 home would probably have more value than it would if there were four homes for
29 sale in that same neighborhood.
30 Several fast-food chain restaurants located on the same major street attract
31 more buyers than one fast food restaurant would if it sat by itself.
32
33 • Principle of conformity. The principle of conformity states that the value of a
34 property is sustained when it is in conformity with other properties in the same area.
35 Conformity refers to size, architectural style, and other features.
36
37 Example:
38
39 If a three-bedroom, one-bath home is in a neighborhood where all the homes
40 have two bathrooms, it might be wise for the owner to consider installing a
41 second bathroom.
42
43 • Principle of contribution. The principle of contribution states that the value of a
44 component of the property is the amount it increases the total value of the property;
45 in other words, the amount by which the value of the property would decrease by its
46 absence. This principle illustrates the difference between the cost of a component
47 and the value added by the component. A contribution is what the market recognizes
48 as the change in value that an improvement makes to a property, rather than what
49 that improvement actually costs.

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 56 Chapter 3

1 Example:
2
3 A remodeled kitchen might add $50,000 to the value of a home, while the
4 actual cost could have been anywhere from $25,000 to $75,000. The contribution
5 value of the remodeled kitchen is $50,000, not $25,000 to $75,000.
6 A pool may cost $30,000 to install on a property, but only add $15,000 to the
7 property value. Therefore, the contribution value of the pool is $15,000, not
8 $30,000.
9
10 • Principle of progression. The principle of progression applies when a lower-priced
11 property is built in an area that consists of more expensive property. The lower-
12 priced property will progress (increase) in value toward the level of the more
13 expensive properties in the area.
14 This principle tends to create price conformity within an area.
15
16 Example:
17
18 The value of the smallest house on the block will tend to increase if the other
19 homes on the street have more value.
20
21 • Principle of regression. The principle of regression applies when a higher-priced
22 property is constructed in an area which consists of lower-priced properties. The
23 higher-priced property will regress (decrease) in value toward the level of the less
24 expensive properties in the area.
25 This principle, like the principle of progression, tends to create price conformity
26 within an area.
27
28 Example:
29
30 The value of the largest house on the block may decrease if the other homes
31 on the street are much lower in value.
32
33 • Principle of substitution. The principle of substitution recognizes that no one would
34 pay more for a property than the amount necessary to acquire an acceptable
35 substitute. This principle is the basis for all mathematical methods which are used by
36 appraisers to estimate value.
37
38 Example:
39
40 If there are several homes for sale in a neighborhood and they are alike in
41 size, quality, and amenities, a buyer, usually, will not purchase the home with the
42 highest price.
43
44 Appraisal Purpose and Intended Use
45
46 The purpose of an appraisal and its intended use are distinct, as defined below.
47
48 • Purpose. The purpose of an appraisal is to estimate some type of defined value. As
49 discussed, there are many different types of value, each of which has a definition of
50 its own. Purpose relates to the work the appraiser was retained to perform, that is, to
51 estimate some type of value. Most appraisals are performed to estimate market
52 value.

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 Evaluating and Pricing Property 57

1 • Intended use. The use or uses of an appraiser’s reported appraisal, opinions and
2 conclusions, or other valuation services by the appraisal client is referred to as its
3 intended use (previously referred to as function in USPAP). For example, the client
4 may use the appraisal to decide whether to sell or not, to buy or not, and at what
5 price. A lender may use the appraisal to decide whether a loan should be made or
6 not by using that property as security.
7
8 THE APPRAISAL PROCESS
9
10 Appraisers follow a defined appraisal process when developing and reporting their
11 opinions and conclusions in an appraisal assignment. The appraisal process is
12 accomplished by following specific steps, the number of which depends on the nature of the
13 appraisal assignment and the data available to complete it. In all cases, however, the
14 valuation process provides the model to be followed in performing market research and data
15 analysis, in applying appraisal techniques and in integrating the results of these analytic
16 activities into an opinion of value.
17 The steps, in the order in which they are performed, are outlined below.
18
19
20 Step 1 Problem Identification
21
22 An appraiser must gather and analyze information about those assignment elements
23 that are necessary to properly identify the appraisal problem to be solved.
24 Communication with the client is required to establish this information. Identification of
25 the problem to be solved requires the appraiser to identify the following assignment
26 elements.
27
28 • The client and any other intended users
29 • The intended use of the appraiser’s opinions and conclusions
30 • The type and definition of value (purpose)
31 • The effective date of the value estimate
32 • Characteristics of the property that are relevant to the type and definition of value
33 and intended use
34 • Assignment conditions and assumptions
35
36
37 Step 2 Scope of Work
38
39 The appraiser must determine the type and extent of research and analyses in the
40 appraisal assignment that is necessary to develop credible assignment results.
41 Determining the scope of work is an ongoing process in an assignment. Information
42 conditions discovered during the course of an appraisal assignment might cause the
43 appraiser to reconsider the scope of work.
44
45
46 Step 3 Data Collection and Analysis
47
48 The primary activity of the appraisal process is the selection, gathering, and analysis
49 of data. In this step, data is collected and assembled for use. Data analysis occurs
50 throughout the appraisal process. As data is collected, it is selected and analyzed for
51 accuracy and relevance (reliability).

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1 Data falls into two types:

2
3 • General data. General data concerns the region, neighborhood, economy, and
4 so on.
5
6 • Specific data. Specific data is information about the subject property and
7 potential comparable properties to be used in the analysis.
8
9 Highest and Best Use Analysis
10
11 Every property has a single use, which produces the greatest income and return.
12 Therefore, the property will have its highest value when it is used for that purpose. A
13 highest and best use analysis indicates whether the existing improvements contribute to
14 the value, or if they should be removed to permit a more profitable use. It also needs to
15 be determined if the alternative use would provide a greater return on the investment.
16 For this analysis, the property’s use must be one or all of the following:
17
18 • Legally permissible • Financially feasible
19 • Physically possible • Maximally productive
20
21 Example:
22
23 A property that contains an old office building may not be in its highest and
24 best use if it is located in a downtown area that is undergoing a residential
25 redevelopment. Its best use might be a conversion to high-end condominium
26 units.
27
28
29 Step 4 Apply the Three Approaches to Value
30
31 There are three mathematical methods that appraisers can employ to estimate the
32 value of a subject property. All three are employed to the extent that they are applicable,
33 unless the assignment does not require one or more of them to be used. The three
34 methods are:
35
36 1) The cost-depreciation approach
37 2) The income approach
38 3) The comparable sales approach
39
40 Each approach yields slightly different results, which must then be reconciled. Each
41 of these approaches is discussed later in this chapter.
42
43
44 Step 5 Reconciliation of the Value Indications and Final Opinion of Value
45
46 After the three approaches have been applied and each has resulted in a value
47 estimate, the three estimates are compared. The appraiser’s confidence in the data and
48 the appropriateness of the approaches to the assignment are weighed. Greater weight is
49 given to the approach that the appraiser feels best reflects the value of the subject, and
50 then a final value is estimated. Weighing the evidence and arriving at a final value
51 conclusion is based on the appraiser’s knowledge, experience, and training. It is not
52 accomplished by averaging the values or using a mathematical process.

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1 Step 6 Report the Defined Value

2
3 The objective of the appraisal is to answer the client’s original question with regards
4 to the value of the rights specified in the subject property. Once the final value estimate
5 has been estimated, the appraiser prepares a report, which is to be delivered to the
6 client. Although there are legal and technical aspects to the way in which appraisals are
7 performed and appraisal reports are prepared, they can be categorized as a form,
8 narrative, or an oral report as defined below.
9
10 • Form reports. Form reports are used in millions of appraisals each year. Most
11 primary lenders and the secondary market require them. The use of a form
12 standardizes the way in which information is reported and it facilitates the
13 underwriting process. This is the reporting preference for most residential
14 appraisals.
15
16 • Narrative reports. Narrative reports are very comprehensive. They provide the
17 client with the reasoning and conclusions of the appraiser in a detailed report that
18 can contain as many as 50 to 300 or more pages. The length and content can
19 vary depending on the nature of the assignment and the requirements of the
20 client.
21
22 • Oral reports. Oral reports are generally given only in connection with court
23 testimony. Appraisers who provide court testimony must follow the same
24 procedures that are used to prepare written reports and must maintain files that
25 support their conclusions and testimony.
26
27 APPROACHES TO ESTIMATING VALUE
28
29 When performing a formal appraisal, appraisers typically use three approaches to
30 estimating the value of property.
31
32 • Cost-depreciation approach
33 • Income approach
34 • Comparable sales approach
35
36 All three approaches are used by the appraiser if the assignment, the available data, and
37 the requirements of the client do not limit their application. Each yields slightly different
38 results and tends to give a more reliable estimate for a particular property type. The
39 differences must be reconciled into a final value conclusion.
40
41 Cost-Depreciation Approach
42
43 The cost-depreciation approach is used to estimate the current cost of reproducing or
44 replacing a building, minus an estimate for depreciation, plus the value of the land. This
45 approach is also based on the principle of substitution. No one would pay more for an
46 existing property than the cost to purchase land and have comparable improvements
47 constructed on that land, assuming no unusual time delay. The value of the subject property
48 can be estimated by using either replacement cost or reproduction cost. Both are defined
49 below.
50
51 • Replacement cost. The replacement cost is the estimated cost at current prices to
52 construct a comparable building with equal utility to the subject building by using
53 modern materials, design, and features. A replacement building is not necessarily

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1 constructed with the same materials as the subject property. Some construction
2 methods and materials may no longer be available; therefore, substitution may be
3 necessary.
4
5 • Reproduction cost. The reproduction cost is the estimated cost to construct at
6 current prices an exact duplicate or replica of the building, which is being appraised
7 by using the same materials, design, and layout as the subject property.
8 Reproduction cost is preferred in appraisals of historic properties.
9
10 The cost-depreciation approach is best used to estimate the value of newer properties,
11 property proposed for renovation, insurance purposes, and properties infrequently
12 exchanged or sold in the real estate market. The cost-depreciation approach may be the
13 only approach available to estimate the value of special-purpose facilities, such as schools
14 and churches.
15
16 Income Approach
17
18 The income approach is used to estimate the value that the property’s net earning power
19 will support. This approach is based on the assumption that the value of a property is related
20 to the amount of income that it can produce in the future. It is based on the appraisal
21 principles of substitution and anticipation. The principle of anticipation states that the present
22 value of a property is based on the benefits it can produce and its future income. Investors
23 use this approach to determine how much they will pay for an apartment building, office
24 building, shopping mall, or other income-producing property.
25 Two techniques that can be applied for the income approach are direct capitalization and
26 gross multiplier.
27
28 • Direct capitalization. Direct capitalization (or capitalization rate) is a mathematical
29 process in which future income is converted into a present value. This technique is
30 not used to value one- to four-family rental properties.
31
32 • Gross multiplier technique. A gross multiplier technique uses gross rent or income
33 instead of net operating income to estimate the value of one- to four-family rental
34 properties. A gross rent multiplier (GRM) is applied for monthly rental properties. A
35 gross income multiplier (GIM) is applied for properties with annual gross rental
36 income. Most markets use a monthly GRM, but some areas prefer to use an annual
37 GIM.
38
39 Comparable Sales Approach
40
41 The comparable sales approach is used to estimate the value indicated by the recent
42 sales of comparable properties in the market. This approach is a direct application of the
43 principle of substitution. The principle of substitution states that if similar or comparable
44 properties are available for sale, the one with the lowest price will attract the greatest
45 demand. The price at which a property will most likely sell is closely related to the price at
46 which similar properties in the same market have previously sold. The comparable sales
47 approach requires an active market. If no sales have occurred, this method is not applicable.
48 Conversely, this method is appropriate for any type of property where sales have occurred.
49 This approach is usually the most applicable method for appraising residential
50 properties. It is the basis for the value estimates, which are used by real estate brokers and
51 sales associates in listing and selling real estate. A sales associate should focus much of
52 their attention on this approach, as it will be used virtually every day in the practice of their
53 profession.

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1 Because of its relative simplicity and reliability, the real estate industry has modified the
2 sales comparison method into the CMA that licensees use today.
3
4 THE COMPARATIVE MARKET ANALYSIS (CMA)
5
6 Developing a comparative market analysis (CMA) is a critical part of success for any
7 licensee when working with sellers. Today’s market is extremely competitive and complex;
8 therefore, we cannot overstate the importance of appropriately pricing the property. The
9 CMA is an opinion of value based on current market conditions.
10 As discussed in the past, customers count on your professionalism, skill, and knowledge
11 to achieve their goal to buy or sell a property. They need your help to interpret the market.
12 This is the reason why the ability to perform an accurate CMA and read and explain an
13 appraisal will build the trust that the customer needs in their agent.
14 You must be careful never to refer to the CMA as an appraisal. Florida law permits a
15 licensee to prepare an appraisal as long as it is performed in conformance with USPAP, but
16 it is highly discouraged. In order for an appraisal prepared by a licensee to be valid, it cannot
17 be used in a federally related transaction; almost all transactions are federally related.
18
19 Example:
20
21 If there is a mortgage involved, the lender is FDIC insured and the loan will be sold
22 on the secondary market, both of which make the transaction federally related. Even if it
23 is an all-cash transaction, the value of the property cannot exceed $250,000. In addition,
24 the licensee is required to follow the USPAP.
25
26 As the licensee, you must establish the market value of any property prior to placing it on
27 the market. Today’s real estate market is extremely competitive and proper pricing is crucial
28 to the sale of the property. As a rule, no marketing and advertising you might do will sell an
29 overpriced listing in today’s marketplace.
30 To have true market value, the following assumptions are critical:
31
32 • Both buyer and seller are acting in their own best interest.
33 • The seller can convey marketable title to the buyer.
34 • Neither party is under duress or compulsion.
35 • The property has been available on the market for a reasonable time.
36 • Payment is in U.S. dollars or the cash equivalent.
37
38 True market value assumes all of these conditions exist simultaneously. However, they
39 rarely do.
40 When preparing a CMA, you should consider the following principles of value:
41
42 • Substitution
43 • Change
44 • Competition
45 • Conformity
46 • Contribution

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1 Preparing the CMA

2
3 For the residential real estate practitioner, the comparable sales approach to value is the
4 method of choice for preparing a CMA.
5 The comparable sales approach to value is the direct utilization of the principle of
6 substitution. If there are multiple properties available for sale, the one with the lowest price
7 will create the greatest demand. The sale price of any property will be closely related to
8 those that have recently sold and are most similar to the subject property. When preparing a
9 CMA, the value must be based on recently sold properties.
10 In preparing the CMA, you should focus on using recently sold properties, usually those
11 sold within the last six months. In today’s volatile market where short sales and foreclosed
12 properties have an impact on market value in many areas, you might be best served by
13 using properties that have sold within the last three months, if available.
14
15 Comparative Market Analysis Steps
16
17 As with appraisals, doing a proper CMA consists of following certain steps, which are
18 listed and explained in further detail next.
19
20 1. Gather and evaluate information about the subject property. When doing a CMA, the
21 seller’s property is referred to as the subject property.
22 2. Select similar properties in the area. Any properties that have characteristics similar
23 to the subject property are referred to as comparables.
24 3. Compare the subject property to the chosen comparables and adjust the value of the
25 comparables.
26 4. Determine an approximate and realistic selling price for the subject property.
27
28
29 Step 1 Gather Information about the Property
30
31 When collecting data about the subject property for analysis, you should concentrate
32 on information about the neighborhood, the home site, and the existing property
33 features. Advise your customers to access the internet for subjective information
34 regarding the quality of the local schools, hospitals, police and fire departments, and
35 crime rates.
36
37 Neighborhood Aspects
38
39 • Access. The proximity of the property to highways, shopping malls, employment
40 areas, parks, etc.
41
42 • Community amenities. Certain features may add value to the community, such as
43 clubhouse theatres and party rooms with kitchens, tennis courts, putting greens,
44 swimming pools, etc.
45
46 • Community status. Is the neighborhood thought to be prominent compared to other
47 nearby communities? Prominent neighborhoods are likely to have higher property
48 values.
49
50 • Consistency. How similar are the homes in the neighborhood in relation to style,
51 age, size, and quality? Zoning codes and restrictions, when enforced, can have a
52 considerable effect on protecting the values of the properties.

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1 • Current land use. Is the neighborhood in transition from a residential area to some
2 other primary use? Depending on what use the area is transitioning to, values of
3 existing property can be on the upswing or the downswing.
4
5 • Government issues. Do the current zoning codes protect the property from the
6 entry of non-residential uses? Also, pull together the property tax information and
7 compare it with neighboring communities.
8
9 • Land contour. How does the land topography compare with other neighborhoods?
10 Variations in the topography are more attractive than areas that are totally flat or
11 steep and hilly.
12
13 • Nuisances. What nearby annoyances could potentially lower the property’s value?
14 Annoyances include odors, industrial noise, pollution, smog, fog, or unsightly views.
15 • Ownership makeup. Are most of the homes in the area owner-occupied or are there
16 many rental properties? Owner-occupied homes tend to be in better shape and have
17 less wear and tear.
18
19 • Public services. Is there public transportation available in the area? Also, obtain
20 information about the location of the police and fire department protection units.
21
22 • Schools. What schools are in the neighborhood and what are their reputations? Are
23 the schools within walking distance of the property? Many buyers put school quality
24 at the top of their priority list when looking for a new home.
25
26 • Streets. How well are the streets maintained? Check the width of the streets. Wider
27 streets are typically preferred over narrow, more crowded ones.
28
29 • Utilities. What utilities are available in the neighborhood? Utilities to consider are
30 electric, gas, water, sewers, telephone, cable TV, and Internet access
31
32 • Vacancies. What percentage of homes in the area are unoccupied? Several
33 vacancies could be an indicator that people are not interested in moving into this
34 neighborhood.
35
36 Home Site Aspects
37
38 • Area. What is the total square footage of the lot? If the lot is substantial, the area
39 may be given in acres rather than in square feet. Sometimes, when two adjacent
40 pieces of property are joined together (assemblage), the value of the one larger
41 parcel may be greater than the value of the two separate ones. This is more
42 commonly referred to as plottage value.
43
44 • Depth. What is the depth of the property? This is the measurement of the distance
45 from the front boundary to the boundary at the back of the site. Sometimes, a deeper
46 lot is thought to be more valuable, but that is not always true. Each lot should be
47 evaluated individually to make that determination.
48
49 • Frontage. What is the frontage measurement? This measurement is the length of
50 the front boundary of the property, either along the street or along a lake, river, or
51 other body of water. If the frontage is significant, it can raise the value of the
52 property, especially if it provides access to a desirable feature.

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1 Special assessments are based on the frontage along the street. If any special
2 assessments are currently being planned or are imminent, the new homeowner
3 could be faced with additional costs soon after the purchase.
4
5 • Landscape. Is the property gently rolling land, which is usually preferable to flat or
6 hilly sites? If the site is a vacant lot and it would incur higher development costs
7 because of the rolling terrain, therefore, the value of the lot would decrease.
8
9 • Position and orientation. What are the site’s features? Features might include the
10 view, amount of sun or shade it receives daily, proximity to traffic noise, and the
11 amount of shelter it receives or doesn’t receive from the elements.
12
13 • Property width. What is the property width? This is the lot’s measurement from one
14 side boundary to the opposite side boundary. Be aware that this measurement can
15 differ. The width of a pie-shaped lot will be much smaller in front than it is in the back
16 and will change at all points along the way.
17
18 • Shape. Is the lot a rectangle, square, or some irregular shape? Standard shapes are
19 generally thought to be more valuable than irregular lots because of their
20 adaptability.
21
22 • Title considerations. Do you notice any evidence of easements or encroachments
23 that could affect the title? Properties with existing easements could be considered
24 less desirable or valuable than a similar property with no easements. Direct your
25 clients to their selected title company in inquire about the existence of existing liens,
26 easements, or physical attachments to the property. Advise them to find out about
27 the legal standing of these encumbrances, and the limitations it will place on their
28 use of the property if any.
29
30 Example:
31
32 An underground utility line could prevent the new homeowners from installing
33 an in-ground swimming pool in a desired location.
34
35 Property Features and Improvements
36
37 • Age. How old are the structures? Does their condition make the property look older
38 or younger than its actual age?
39
40 • Air conditioning. Is the home air-conditioned? If so, does it have central air or
41 window units? Air conditioning adds value to a home and, since most areas of the
42 country have at least some hot weather, most buyers consider it vital. In Florida,
43 central air conditioning is considered a necessity.
44
45 • Basement. If the home has a basement, is it finished or unfinished? A finished
46 basement adds value to a home, but usually not enough value to recover the cost of
47 having made the improvement.
48
49 • Energy efficiency. What energy-saving features are in the home? This includes
50 extra insulation, double- or triple-paned windows, and energy efficient appliances,
51 such as hot water heaters, dishwashers, and heat pumps. Newer appliances and
52 central air conditioning units usually carry the highest efficiency ratings and may add
53 considerable value.

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1
2 • Home size. What is the square footage of the home’s living area? This does not
3 include attached garages, unfinished basements, or porches. Most often, the living
4 area must be under heat and air-conditioning.
5 Note: Home size is one of the most important factors that affects price. Many
6 jurisdictions have very specific standards for measuring living areas, which
7 regulators require licensees to follow. You should be aware of any measurement
8 standards in your area before finalizing any square footage estimate in your CMA.
9
10 • Interior home design. Is the floor plan efficient and convenient with an attractive
11 layout? Are there any design flaws that could lessen the home’s value? Design flaws
12 are referred to as functional obsolescence.
13
14 • Parking facilities. If the home has an enclosed garage, how many cars can it hold?
15 Is the garage space big enough for storage and/or a workshop in addition to the
16 parking area? Is there a doorway that goes directly from the garage to the home’s
17 living area? If the garage is detached, is there a covered walkway or other way to get
18 from the garage to the house and stay protected from the weather? If there is no
19 garage, is there a carport? A carport is less valuable than a garage, but more
20 valuable than no protection at all.
21
22 • Quality of construction. What types of materials were used in the construction of
23 each of the buildings? Is the quality of the materials good, fair, or poor? This is
24 especially important in the kitchen and bathrooms.
25
26 • Total number of bathrooms. How many full baths, three-quarter baths, and half-
27 baths are in the home? A full bath has a sink, toilet, and tub, and may or may not
28 have a shower. A three-quarter bath has a sink, toilet, and shower, with no bathtub.
29 A half-bath has only a sink and toilet.
30
31 • Total number of bedrooms. How many bedrooms are in the home? Bedrooms add
32 considerable value to a home. If all other home features are equal, a three-bedroom
33 home is worth much less than a four-bedroom home. The value of bedrooms
34 depends on the area in which the home is located. In a retirement community, for
35 instance, a two-bedroom may add significantly more value than a four-bedroom
36 home. In a family community with children, additional bedrooms may add
37 significantly more value than in a retirement community.
38
39 • Total number of rooms. How many rooms are in the home, not including the
40 bathrooms or any rooms in the basement?
41
42
43 Step 2 Select the Comparable Properties
44
45 A good comparative property should be as similar as possible to the subject
46 property, the one that you are valuing. It should also be an arms-length transaction.
47 Which means a transaction in which the buyer and seller were unrelated and acting in
48 their own best interest.

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1 Areas of similarity should include:

2
3 • Size of lot • Style
4 • Design • Pool
5 • Square footage • Physical condition
6 • Location • Number of rooms
7 • Age • Garage
8 • Improvements • Amenities
9
10 You should choose at least five to six comparables for the CMA; eight to ten would
11 be better, if available. This number can be reduced by assigning a weight to each
12 comparable property. The more similar the comparable is to the subject property, the
13 greater the weight.
14 You should choose comparable properties from those that have sold recently, those
15 whose sales are pending, those whose listings are currently active, and those whose
16 listings have expired. There are good reasons for choosing properties that fall into all of
17 these categories, as explained below.
18
19 Recently Sold
20
21 Comparable properties that have recently sold are probably the best predictor of the
22 market value of the subject property. Since the transactions have closed and the seller
23 has received his or her cash, it is safe to assume that the selling price was arrived at
24 mutually by a willing seller and buyer.
25 This list of properties should include similar properties that have sold within the past
26 three to six months. The more recent the sale, the more reliable the data. If it is
27 necessary to go back more than six months, you should make inflationary adjustments.
28 Usually, though, there are too many variables involved to use comparables that were
29 sold longer than 12 months ago.
30 You should include a minimum of three properties in this category if possible. If there
31 isn’t enough data available, you may have to increase the time period. However, keep in
32 mind that the further back the sales go, the less reliable the data becomes, and the more
33 adjusting you will have to do to account for changes in the market over that time period.
34 The list of recently sold properties shows the actual sales price for the property. It
35 also shows the original listing price and the days on the market, which gives information
36 about how competitive the home was in the marketplace at the time. Interestingly,
37 appraisers only use data from sold properties when performing appraisals.
38
39 Pending Sales
40
41 A pending sale is an offer that has been submitted by a
42 buyer and accepted by a seller, but neither has the sale
43 closed nor the title transferred. Sales generally stay in the
44 pending stage for 30 to 60 days. Keep in mind that the
45 information on pending sales is not as reliable as on sold
46 homes, for these reasons:
47
48 • The price you see on the pending sale is the listing price, not the final sale price.
49 The definite sale price of the home is not available until the sale actually
50 completes. Many times, the sale price is somewhat lower than the listing price, or
51 it may even be higher.

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1 • The sale is not complete until the closing takes place. In other words, something
2 could still happen to overturn the sale, even up until the very last minute. A home
3 inspection can raise all kinds of issues, or either party to the transaction could
4 simply change his or her mind. The lender will ask the buyers to verify their
5 employment just a couple of days before closing or may not approve financing.
6
7 If the pending comparable is a very close match to the home you are trying to list,
8 you could contact the broker of the pending sale to see if the property closed at a price
9 close to the asking price. The broker cannot give out the actual final price because that
10 would be a violation of duties owed to the seller; however, he or she might be able to
11 give enough general information to help you arrive at the list price.
12
13 Active Listings
14
15 Sellers are always interested in knowing the listing prices of the comparable homes
16 currently for sale in their area. After all, the surrounding comparables are their
17 competition. You need to present this information to the sellers along with sound advice
18 from your experiences. You are out working with buyers in the market, and you can give
19 advice to the sellers from a buyers’ perspective, which can provide them with valuable
20 insight. In other words, if buyers are looking to move into a certain school district or in a
21 local community, which has lower tax rates, you should make your sellers aware of this
22 to help them in pricing their property. Sellers need help in keeping their expectations
23 realistic.
24 To help them do this, you might use the following strategies:
25
26 • Emphasize to the seller that the current asking prices will be affected by the
27 negotiations between the sellers and the eventual buyers of the homes. Seldom
28 does a home sell at, or even close to, the original listing price. Statistics are
29 available from your local MLS that show selling price-to-listing price percentages.
30 If, for example, in your area that number is 96%, you should inform your seller.
31
32 • Inform your seller about how many houses are on the market in their
33 neighborhood, the asking prices, advantages and disadvantages of those listings
34 compared to theirs, and the improvements they can make to their home to make
35 it more marketable. Be sure to check the local county appraisers’ web site for
36 homes that aren’t listed in the MLS. These homes may have sold without the
37 help of a REALTOR.
38
39 • Clarify to the seller that while he or she has only one home to sell, the buyers
40 have a number of homes from which to choose. They will tour many homes
41 before and after they see your seller’s home. Ask your seller what features they
42 think will make their home stand out among the competition. Make sure you
43 inform the seller of the features of the sold listings in their neighborhood. One
44 may have sold for a premium, but the reason for that could be that it was
45 completely remodeled. In addition, one might have sold at a lower price due to a
46 short sale or foreclosure.
47
48 Expired Listings
49
50 An expired listing is a listing for a home that did not sell. These homes are at the
51 opposite end of the spectrum from the homes that sold.
52 A property fails to sell, most often, because of overpricing. Expired data may show
53 the seller that the asking prices of these homes were significantly higher than the selling
54 prices of the homes on the recently sold list. This is powerful information for you to share
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1 with a prospective seller. This information can support suggestions for a more realistic
2 listing price. You can also argue that setting a too-high asking price will waste valuable
3 time in obtaining the sale.
4 If you can find one, a particularly good example to share with a seller is an expired
5 listing that had been re-listed and is now on the sold properties list. This will demonstrate
6 very clearly how the home was originally overpriced and failed to sell, but, when re-listed
7 at a price that was on target, sold readily.
8
9 CMA Explanation
10
11 The explanation of a CMA may change slightly when you are talking to a buyer or seller. For
12 example, if you are explaining the CMA to a seller, you might want to point out the reason
13 why you selected these three categories. The “sold” category is where the seller can find
14 people who had similar needs and were successful in fulfilling them. The “active” category
15 represents the competitor who has similar needs and attracts prospects who will choose the
16 property most convenient for them according to the "principle of competition" and the
17 "principle of substitution." The “expired” category represents people who, like the seller, had
18 a need but failed to fulfill it for many reasons, most commonly of which is that the property
19 was overpriced. By explaining this to your seller, they will understand the difference between
20 what they wish to achieve and what they are more likely to achieve; thereby, learning to
21 interpret the market with you.
22
23 Sample CMA Form
24
25 A sample CMA form that you could use when preparing the CMA for your
26 prospective sellers is shown below. Many different formats are available.
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
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1
2 Step 3 Adjust the Comparables
3
4 In a perfect world, all of the comparable sold properties would be exactly the same
5 as the subject property; unfortunately, this never happens. Your goal is to select homes
6 that are closest to the subject property in architectural design, age, condition, square
7 footage, and location. It will be necessary to adjust the comparables to bring them in line
8 with the subject property. The idea is to make the comparables like the subject property.
9 Once you have determined an estimated value for specific home features, you will
10 either add or subtract those values from the sale or listing price of the comparables.
11 When adjusting comparables, always adjust the comparable; never adjust the subject
12 property. All adjustments are made to the comparable.
13 If a comparable lacks a feature that the subject property has, then add the value of
14 the feature to the price of the comparable.
15 If a comparable has a feature that the subject property does not have, then subtract
16 the value of that feature from the price of the comparable.
17 You can adjust the comparables by utilizing two different methods.
18
19 1. Matched Pair (or Paired) Sales Technique
20 2. Square Footage Technique
21
22 Matched Pair (or Paired) Sales Technique
23
24 The matched pair (or paired) sales technique entails estimating the value of various
25 physical differences by locating other properties that have sold in the area, of which, one
26 that has a particular feature you are trying to value and another one that does not. If that
27 single item is the only difference between the two sales, then the theory says that the
28 difference in the sale price of the two items can be directly attributed to the absence or
29 presence of that item.
30 Of course, there may be other variables and the larger your sample, the more
31 accurate the results.
32
33 Example 1:
34
35 You found a home with a swimming pool that recently sold in the area for
36 $210,000. You also found a home that does not have a swimming pool, but is similar
37 in other respects, that recently sold in the same area for $200,000.
38 You can assume that the $10,000 difference in the sale price is due to the pool.
39 Furthermore, you can deduce that a pool is worth $10,000 in that area.
40
41 Example 2:
42
43 You found a home that is on a one-acre lot with a one-car garage that recently
44 sold in the area for $126,000. You found another home that is on a one-acre lot with
45 a two-car garage that recently sold in the same area for $134,000.
46 All other things being equal, you can assume that the $8,000 difference in the
47 sale price is attributable to the larger garage.

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1 Square Footage Technique

2
3 The square footage technique may very well be the most used method to adjust the
4 comparables. It is easy to ascertain the sold price per square foot in any given area. In
5 fact, most CMA programs will calculate the highest, lowest, and average price per
6 square foot. Take the price per square foot of the sold properties and apply it to the
7 subject property to arrive at a value of the property, or a value of an item, like a
8 bedroom.
9
10 Example 1:
11
12 Several properties have recently sold in the area for $200.00 per square foot.
13 The subject property is 2,500 square feet in size. Therefore, the value of the subject
14 property is calculated to be $500,000. (2,500 sq. ft. x $200 per sq. ft. = $500,000)
15
16 Example 2:
17
18 The subject property is a four-bedroom, 2,300 square foot home. You found a
19 very similar comparable property that is a five-bedroom, 2,800 square foot home.
20 The extra bedroom represents a 500 square foot difference between the homes.
21 (2,800 – 2,300 = 500) You can then calculate that the extra bedroom would be worth
22 $100,000 (500 X $200.00 = $100,000).
23
24 Amenities
25
26 Adjusting for amenities or updates is an acquired skill. It can be very difficult to put a
27 value on an updated kitchen or bathroom. You may want to start by using the top price
28 per square foot for updated properties and using the average price per square foot for
29 properties that are not updated.
30
31 Other Adjustments
32
33 Depending on circumstances, you might need to make any or all of several other
34 adjustments. Some are listed below.
35
36 • Financing terms. The manner by which a property is financed can influence the
37 price that a buyer is willing to pay for it. If very favorable terms are offered, a
38 buyer may be willing to increase the offer. If only unfavorable terms are available,
39 the buyer may decrease the offer.
40
41 • Conditions of sale. Market value assumes that neither the buyer nor the seller
42 is under any undue influence and are acting in their own best interest.
43
44 • Market conditions. The market may have substantially changed since the time
45 the comparable was sold. If so, the sale price of the comparable needs to be
46 adjusted to reflect current market conditions.
47
48 • Location. If the comparable is located in a different neighborhood or location,
49 you may need to adjust to compensate for that fact.
50
51 • Physical characteristics. You may need to adjust for differences in age,
52 condition, lot size, number of garage stalls, bedrooms, bathrooms, and so on.

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1 Adjust the Comparables Scenarios

2
3 Scenario 1: Determine an Adjustment
4
5 Mark, a broker, found a comparable in the same neighborhood as his subject
6 property. Almost all of the factors are the same. The difference is that the
7 comparable has three full bathrooms and the seller’s home has two full baths. The
8 comparable sold for $250,000.
9 Because the comparable property has a feature that the seller’s home does not
10 have, Mark needs to adjust the sales price of the comparable down to make up for
11 the difference. How does he decide how much to adjust the price?
12 Until you have enough experience in the market to know the value of certain
13 features, you will have to determine those values by comparing homes that have
14 already sold. So, let’s look at how Mark can determine the adjustment for the
15 bathroom.
16 Mark has found two homes, which have recently sold. Both comparables have
17 three bedrooms, a formal dining room, a two-car attached garage, and a similar lot
18 size. In fact, they are nearly identical, except that one home has four bathrooms and
19 the other one has three. The home with four bathrooms sold for $267,500; the home
20 with three bathrooms sold for $262,000. (A difference of $5,500.)
21 Since the bathrooms are the only feature difference, it’s safe to say that the
22 $5,500 difference in the sale price is the value of the bathroom. By using this
23 method, Mark knows that a full bathroom is worth $5,500.
24 Going back to our scenario, Mark can subtract $5,500 from the $250,000 selling
25 price of the comparable to arrive at an adjusted sales price of $244,500.
26 Mark can look at other sets of comparables to get some reasonable estimates of
27 what different features, such as a bedroom, a three-car garage, a larger lot, or a
28 separate formal dining room might be worth.
29
30 Scenario 2: Adjust the Comparables
31
32 Luke, a broker, has found three recently sold comparables for his subject
33 property in Orlando. Comparable #1 sold for $262,000, comparable #2 sold for
34 $247,250, and comparable #3 sold for $245,750. Using the information about the
35 three properties, Luke can create a chart that will help him adjust for the differences
36 in the properties and arrive at an estimate of a listing price to share with his sellers.
37 Look at the sample chart, which illustrates how Luke made the adjustments.
38 Remember: if a comparable lacks a feature that the subject property has, then add
39 the value of the feature to the price of the comparable. If a comparable has a
40 feature that the subject property does not have, then subtract the value of that
41 feature from the price of the comparable.

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1 Based on the information found by adjusting the price of the comparables, Luke
2 can recommend a listing price to his seller.
3
4
5 Comparison Chart for Comparable Properties
6 Subject Comparables
7 property 1 2 3
8 Sale price TBD $262,000 $247,250 $245,750
9 Features
10 Location Orlando Equal Equal Equal
11 Lot size 80 x 195 Equal Equal Larger
12 Adjustment -$5,000
13 Age 10 years Equal Equal Equal
14 Style Ranch Equal Equal Equal
15
Bedrooms 3 2 Equal 4
16
Adjustment +13,500 -$13,500
17
Bathrooms 2 Equal 3 3
18
Adjustment -$5,500 -$5,500
19
20 Total rooms 7
21 Square feet 2,100 Equal Equal Equal
22 Exterior Good Equal Equal Equal
23 Garage 2-car None Equal Equal
24 Adjustment +$7,000
25 Basement Unfinished Equal Equal Equal
26 Financing
27 Days on market
28
29 Total Adjustments +$20,500 -$5,500 -$24,000
30 Adjusted Market
$282,500 $241,750 $221,750
31 Value Price
32
33 Step 4 Determine a Realistic Selling Price
34
35 Step 4 is the process by which you determine the value of the subject property – or
36 the realistic selling price. In the chart used in Scenario #2, you see that each comparable
37 now has an adjusted market value price. Luke should use these figures to estimate the
38 value of the subject property.
39 However, before Luke decides on an estimate, he needs to evaluate the soundness
40 of each comparable. The most reliable comparables are those that are the most similar
41 to the subject property. Most similar means the fewest number of adjustments.
42 In some cases, it may be necessary or beneficial to assign a weight to each
43 comparable. The more the comparable looks like the subject, the greater its weight or
44 importance in determining value.
45 In Scenario #2, Comparable 3 is the least reliable, since it has many adjustments.
46 Comparables #1 and #2 are much more similar to the subject property, with Comparable
47 #2 being the closest. Therefore, Luke would give the most weight to Comparable #2 and
48 the least weight to Comparable #3.
49 Keep in mind that it’s not up to you to give the seller an exact listing figure. You
50 would do best to offer the seller a listing range and then let the seller set the price to
51 whatever he or she feels comfortable with within that range. Using our example above,
52 Luke would suggest a listing price within the range of $245,000 to $263,000.

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1 The seller does not set value; the market (speaking through past sales) sets the
2 value. The seller can only set the asking price.
3
4 SHORT SALES, REOS, AND THE CMA
5
6 An abundance of distressed properties in a market will present some unique challenges
7 in the preparation of the CMA.
8 When preparing a CMA, it is always preferable to select comparable sold properties that
9 were not distressed properties. This may not be possible in an area with an abundance of
10 distressed properties. In these scenarios, the distressed properties will affect market value.
11 A seller may feel that his or her property is worth substantially more than other properties
12 that have sold that were distressed, but this may not be the case.
13
14 Example:
15
16 If there have been 10 or 15 distressed properties that sold for $150 per square
17 foot and the properties with active listings are asking $150 to $160 per square foot,
18 will the seller be able to sell for $250 per square foot? Of course, the answer is “No.”
19 The subject property would never be appraised at this value. The distressed market
20 sets value in many areas.
21
22 If the seller wants to sell, they must compete in the market that exists; this includes a
23 market with distressed properties.
24
25 Broker Price Opinion (BPO)
26
27 A broker price opinion (BPO) is an estimate of value for a property (real estate asset)
28 owned by the bank. These properties are commonly referred to as real estate owned (REO)
29 properties. They are properties that were obtained due to foreclosure, or deed in lieu of
30 foreclosure, or a short sale. The BPO is sometimes referred to as an automated valuation
31 model (AVM) because it is usually submitted by computer.
32 A lender may hire a real estate professional to perform a BPO to help determine the
33 selling price of the property since the licensee typically has knowledge of the local market.
34 The licensee will be asked to take photos of the property and complete a BPO report form
35 provided by the lender. The report includes a neighborhood analysis of comparable
36 properties along with local and regional market information. Factors that will affect the price
37 of the property in a BPO report are the values of similar surrounding properties, sales trends
38 in the neighborhood, and the amount of repair needed to put the property up for sale. BPOs
39 are less thorough than an appraisal but require more analysis than a basic CMA.
40 Anyone who holds an active broker, sales associate, or appraisal license in the state of
41 Florida may prepare a BPO. The preparer is entitled to receive compensation for the BPO.
42 As the market is ever evolving, you will need to learn new skills to provide services to
43 those who need it the most. When a market switches from seller to buyer, it will cause an
44 increase in the number of distressed owners, short sales, and REOs. This will create a need
45 for professional BPO preparers. Creating a BPO might not be the highest paid job; however,
46 it creates invaluable relationships with lenders that will result in them trusting you to list their
47 portfolio and create an important new stream of income.
48 An outsourcer is an asset management company that handles the entire process from
49 the time it is assigned to a broker to the sale. Many lenders choose not to handle the asset
50 themselves, so they turn it over to an outsourcer for handling.

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CHAPTER 3 REVIEW QUESTIONS

1. Appraisals used by lenders in federally related transactions must comply with

and be performed by who are registered, licensed, or
certified under F.S. .
2. is the amount that should be paid for property but is not
necessarily the amount which is asked or paid. It is the value most often estimated in
real estate valuation.
3. is the type of value that is specific to a
particular investor. It is the highest price the investor will pay and the lowest price the
seller will accept.
4. is the amount which remains after all assets of a
business have been sold in a hurried sale and all liabilities have been paid. It is the value
of a .
5. The principle of states that the value of a property today is the
sum of its future benefits. This principle is visible in the purchase of
property.
6. The principle of states that the value of a property component is the
amount it the property value when present, and the property
value when absent.
7. According to the principle of , a buyer will not pay more for a home than
what he or she will pay for another home that is similar in characteristics and amenities.
8. In the data collection and analysis step of the appraisal process, a
analysis indicates whether the existing improvements contribute to the value, or if they
should be removed to permit a more profitable use.
9. The approach to estimating value is used to estimate the current
cost of reproducing or replacing a building and is most reliable for properties that were
built recently.
10. The approach is used to estimate the value of a property
based on recent sales of similar properties in the market. This approach is a direct
application of the principle of .
11. When doing a CMA, the seller’s property is called the . Properties that
have similar characteristics that will be used for comparison are called .
12. When collecting data about a property for a CMA, you should concentrate on obtaining
information about the , , and existing .
13. When adjusting comparables, you should always adjust the ;
never adjust the .
14. If a comparable lacks a feature that the subject property has, then the
value of the feature to the price of the comparable. If a comparable has a feature that the
subject property does not have, then the value of the feature from the
comparable.
15. A lender may hire a real estate professional to perform a to help
determine the selling price of a bank-owned property. This type of property is commonly
referred to as a property.

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CHAPTER 3 PRACTICE EXAM

1. A comparative market analysis (CMA) 5. Which principle of value is the

contains information about all comparable sales approach based
EXCEPT which of the following on?
items? a. Anticipation
a. Currently listed homes b. Competition
b. Recently sold homes c. Substitution
c. Recently remodeled homes d. Highest and best use
d. Similar expired listings that didn't sell
6. When performing the data collection
2. Which of the following is the term and analysis step of an appraisal,
used to describe the change in value which of the following is NOT a
that an improvement makes to a condition for highest and best use
property? analysis?
a. Competition a. Minimally productive
b. Contribution b. Financially feasible
c. Change c. Physically possible
d. Conformity d. Legally permissible

3. Which of the following information 7. Which property would not be a good

about the subject property is NOT choice as a comparable property
obtained as part of the first step of when performing a CMA on a subject
preparing a CMA? property?
a. Neighborhood aspects such as a. A recently sold property in the same
schools, utilities, and community neighborhood
amenities b. A pending sale down the street
b. Market aspects such as recent sales, c. A property next door that sold over
pending sales, and active listings two years ago
c. Home site aspects such as square d. An active listing in a nearby
footage, landscape, and easements neighborhood
that could affect the title
d. Property features such as age, size, 8. Which of the following terms best
and number of bedrooms and describes the amount which is
bathrooms actually paid in a real estate
transaction?
4. Tim and Sue have the smallest home a. Assessed value
in a sought after neighborhood. The b. Cost
value of their home is increased c. Price
because of the higher value of the d. Market value
other homes in the neighborhood. Of
which appraisal principle is this an 9. A lender requests an opinion of value
example? for a bank-owned property. Which
a. Regression valuation method would most likely
b. Substitution need to be performed?
c. Anticipation a. CMA
d. Progression b. BPO
c. Appraisal by a licensed appraiser
d. Appraisal by a real estate licensee

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10. Which property would most likely be 13. Why would you perform a
appraised using the income comparative market analysis?
approach? a. To establish an average base price.
a. A church b. To discover why some homes have
b. A single family, owner-occupied not sold.
home c. To identify the listed value of homes.
c. A single-family home proposed for d. To identify an estimate of a
renovation property's value based on
d. An apartment building comparable sales.

11. What should you give to the sellers to 14. Why is the information on pending
help them set a realistic listing price sales not as reliable as the
with which they can feel comfortable? information on sold homes?
a. A listing range a. It is totally based on the seller's
b. An exact listing price opinion.
c. A list of similar properties b. Almost all pending sales are
d. An appraisal of their property outdated.
c. They only indicate market value.
12. The subject property in a CMA has d. The price shown is the listing price,
four bedrooms and three bathrooms. not the sales price.
A good comparable property has four
bedrooms, but only two bathrooms. A 15. Which type of value is assigned by
bathroom is valued at $5,000. Which the property appraiser for tax
adjustment should be made? assessment?
a. Make no changes to the price of the a. Assessed value
comparable. b. Investment value
b. Add $5,000 to the price of the c. Market value
comparable. d. Use value
c. Throw the comparable property out
of the analysis.
d. Subtract $5,000 from the price of the
comparable.

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 CHAPTER

WORKING WITH SELLERS

OVERVIEW Listings are the lifeblood of every real estate office. To be
successful, you must list properties and find buyers for properties.
Finding sellers and buyers is critical to earning a commission;
therefore, it is crucial to a successful real estate career. A common
saying referring to listings is, “List to last.”
Learning prospecting techniques, preparing and conducting a
listing presentation, and filling out a listing contract are tasks that you
must know how to do correctly. Once you have obtained your listings,
you’ll need to know how to service them effectively to ensure that you
have happy and satisfied clients.

OBJECTIVES After completing this chapter, you should be able to do all of the
following:

• Explain prospecting and the various prospecting methods

• Discuss what you should include in a listing presentation
• Describe ways to make your listing presentation a success
• Identify the common types of listing contracts
• Explain the important parts of the Exclusive Right of Sale
listing contract
• Describe the various aspects of servicing a listing

1 PROSPECTING
2
3 Prospecting is the very foundation of your real estate business. Buyers, sellers, closings,
4 and commissions all stem from prospecting. Prospecting is the process of looking for new
5 business; this process never stops. In fact, you should spend a majority of your time on
6 prospecting for business. If you understand this concept and develop a truly aggressive and
7 consistent prospecting plan, you will ensure the success of your real estate business.
8 There are three keys to prospecting success.
9
10 • Number of contacts. Simply put, it's all about the numbers. The more people you
11 put your name in front of, talk to, or meet in person, the more business you will do.
12 Who do you think will do more business, the broker who contacts a hundred people
13 or the one who contacts a thousand? The answer is obvious.
14
15 • Consistency of contacts. Yes, it's all about the numbers, but that must include
16 consistency. Consistency means two things in prospecting. First, you must prospect
17 each day; prospecting never stops. Second, prospect to the same people
18 consistently. Doing so will increase your rate of return. Repetition is critical. The
19 more times a person sees or hears your name, the more likely they will call you.
20
21 • System for tracking contacts. As you prospect, it’s essential to keep track of and
22 organize all the information you obtain about your target prospects. You need to
23 have a tracking system in order to control the information you collect. We refer to this

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1 as your database and it will enable you to retrieve and utilize the information at will in
2 your prospecting efforts.
3
4 Leverage is the key. In using the social sites, you leverage your ability to communicate
5 and share, which allows you to grow a sphere of influence exponentially.
6
7 Your Database
8
9 Information management plays a key role in allowing you to achieve all three of the keys
10 to prospecting success. The better you manage your data, the more successful you will be.
11 Technology enables you to manage and access large amounts of information. Contact
12 management software and mobile applications are available to provide quick access to your
13 information from your computer, iPad, or other mobile devices. The more automated you
14 make the prospecting process, the more people you can reach on a consistent basis, with
15 less time and effort.
16 When setting up your contact management software, start with five categories and
17 create a separate database for each.
18 Here is where a contact relationship management (CRM) becomes useful. Having a
19 system that helps you to track your contacts, reminds you when to call, email, or text, and in
20 some circumstances, does it automatically. All of this will help you to make the most of the
21 time you invested to find new contacts.
22
23 • Sphere of influence. You should start with your sphere of influence database. Start
24 by compiling a list of all the people you know and with whom you have ever
25 interacted. This includes friends and family, your hair stylist, auto mechanic, doctor,
26 lawyer, accountant, favorite server or bartender, members of civic organizations,
27 clubs, sporting events, and school acquaintances. Literally, this list should include
28 everyone you can think of.
29 This may be somewhat overwhelming and time-consuming in the beginning, so
30 you might begin by inputting 10 people every day until you have entered your
31 complete list. Of course, this list will grow over time as you meet and interact with
32 new people, so just add them to your database as you meet them.
33 A good prospecting technique is to tell potential customers that you are always
34 looking for new business. Ask if they mind if you add them to your prospecting list.
35 You can tell them that you are always looking to increase your business and you
36 could use their help. When asked, most people love to help someone they admire
37 and trust. We need to make sure that the people in our sphere of influence regard us
38 in that light.
39
40 • Expired listings. Expired listings are listings for properties that were placed on the
41 market but failed to sell. Working with expired listings gives you a lot of power at the
42 front end, because you start with a lot of information. You know what price the sellers
43 were asking for the property, the commission that was offered, and the fact that they
44 want to sell. Most importantly, the sellers are probably extremely motivated by now,
45 since their property was on the market for several months previously. Every day, you
46 should check the Multiple Listing Service (MLS) for expired listings in your market
47 area and enter the information into your database for expired listings. You can
48 automate this process through your MLS home page.

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1 • For sale by owner (FSBO). For sale by owner (FSBO) properties are another great
2 place to prospect for new business. With FSBOs, you know the sellers are already
3 interested in selling, so all you need to do is convince them that you’re the one who
4 can sell it for them. You can find FSBOs by driving
5 through your market area looking for “For Sale by
6 Owner” signs and by checking the real estate
7 classifieds section of the local newspaper each
8 Sunday. You can assume any property ad that does
9 not display the name of a brokerage company is a
10 FSBO property. Gather their information by checking
11 the tax rolls and place the information in your FSBO
12 database.
13
14 • Geographic farm. A geographic farm area is a
15 specific geographic location, subdivision, or area in which you choose to concentrate
16 your activities. The idea is to establish yourself as the expert in that area or
17 neighborhood, so that when those sellers think about real estate, they’ll think about
18 you. The best farms tend to be homogeneous areas having similarly priced homes or
19 sharing characteristics, such as age, family type, attitudes toward recreation, etc.
20 When choosing a farm area, consider how you relate to the people in that area or
21 group. If you are comfortable with and have a special interest in the area, you’ll more
22 likely exert the effort you’ll need for success.
23 Once you’ve chosen a geographic farm, enter all of the information about the
24 homes into your geographic farm database. You can automate this process by using
25 the MLS system or the tax rolls in your local county tax appraiser’s office.
26
27 • Past clients. Past clients are the best leads because you already have a past
28 working relationship with them. You can think of it as “free business” since you’re
29 getting the business from work you have already done. After completing a
30 transaction, enter the sellers’ or buyers’ information, including their forwarding
31 address, into your past clients database. Over time, the database will grow. It’s
32 critical that everyone in your past clients database hear from you at least twice a
33 year. Send them a postcard, anniversary of their purchase, birthday card, calendar,
34 or other similar mailing. Be sure any communication you send contains your
35 company's name, your name and photo, and your contact information.
36
37 Prospecting for Sellers
38
39 Listings are the foundation of a successful real estate career. The best way to find
40 buyers is to have listings. As we discussed in the database section above, there are five
41 sources for obtaining listing prospects. We have already defined each of the categories.
42 Now, we will discuss how to utilize them in your prospecting efforts.
43 Since virtually all of your listings will come from one of these five sources, your business
44 plan should focus on prospecting to these groups.
45
46 • Sphere of influence. Make sure that everyone knows you are in the real estate
47 business. There's nothing worse than running into somebody you know only to have
48 him tell you that he just listed with another broker because he didn’t know you were
49 an agent. Tell everyone that you are in the real estate business and have the
50 expertise to handle all of their real estate needs.
51 Start by calling persons in your sphere of influence to create that personal
52 contact. Subsequently, direct mail is probably your best approach. You can be
53 extremely creative with sphere of influence mailings, using postcards, property flyers,
54 tri-fold brochures, refrigerator magnets, calendars, just listed / just sold cards, and
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1 other print pieces. The list is almost endless. However, be sure, as in all of your
2 mailings, that there is some form of call to action followed by your phone number. A
3 call to action tells the recipient what to do next.
4
5 Example:
6
7 Your postcard might end with the call-
CALL
8 to-action phrase, “Call today for all of TODAY!
9 your real estate needs.”
10
11 Your sphere of influence campaign is
12 exactly that, a campaign. It’s a never-ending process. In the beginning, the more
13 frequently you send out mailings (including e-mail), the better the results. A good
14 practice is to send a mailing at least once a month, and then, after three months,
15 send one at least every 60 days. Support your direct mail campaign with two to three
16 phone calls per year and a face-to-face meeting, if possible.
17
18 • Expired listings. Expired listings are easy to find because they are in the MLS
19 system. You can automate the process by scheduling the MLS to send you the
20 expired listings in your area of choice.
21 To automate the MLS process, login to the MLS system and change the search
22 criteria to the desired classification and type of properties. Examples of
23 classifications might include residential new, residential pending, residential expires,
24 residential back on the market, and residential price change. Types of properties
25 might include residential single-family or condominium, townhouse, and villa.
26 Once you’ve changed the criteria to your specifications, whenever you log into
27 the MLS, it will automatically search the areas for your specific criteria and give you
28 that information. If you have chosen to search for all of the expired listings in your
29 area, then all of the expired listings in your area will appear.
30 Enter the expired listings information into your database and start contacting
31 those sellers consistently. Contact them approximately once a week until they relist
32 the property, hopefully, with you. It’s a fact that approximately 98% of all expired
33 listings are relisted with a broker. You want to be that broker.
34
35 • For sale by owner (FSBO). Gather information on FSBO properties by checking the
36 tax rolls and then start prospecting. One approach includes sending letters to the
37 homeowner. The letter includes helpful advice on selling the home. Another
38 approach is to deliver a free packet of information to the homeowner that includes
39 forms, helpful hints, and articles on selling, and sample settlement instructions.
40 Some agents simply telephone for an appointment or knock on the door. The key to
41 any approach you choose to use is to convince the homeowner that selling a home is
42 complicated and that you could do it better and faster.
43 Even if you are initially shy about contacting FSBOs, you may find it much easier
44 if you have a specific buyer in mind. In such a case, you can call the owners and ask
45 them for a one-party listing or a one-time showing contract. Since most owners
46 would not be willing to pass up an opportunity for a prospective buyer to see their
47 home, they will often give permission for the single showing. This will give you an
48 opportunity to view the home and meet face-to-face with the owners.
49
50 • Geographic farm area. Successful farming requires a long-term commitment. Think
51 in terms of years, not months. Before you select an area to farm, you need to do your
52 homework. Things to consider include the number of homes in the area, price
53 ranges, turnover rates, increasing price values, and whether or not it is currently
54 being farmed by several real estate companies. The area must yield sufficient
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1 transactions in a price range that will allow you not only to make a living but also to
2 generate enough income to be able to fund your farming effort. Experts recommend
3 an area of no more than 200 homes to start, but you can increase your farm as your
4 business grows.
5 Ideally, the area or areas would be close to where you work or where you live.
6 The more convenient for you the better since you will spend a lot of time there.
7 Convenience will also allow you to provide better service for your sellers.
8 Use the MLS to search for sold properties within the last year. Look at the sold
9 properties to determine the price range, the volume of sales, and the brokerage firms
10 that had the listings. If the same brokerage code is preeminent, that means someone
11 in that office is farming that area. If no one code appears predominantly and there
12 are numerous brokers with a few sales here and there, then it is likely that no one is
13 farming that area. Note, however, that just because someone else is currently
14 farming an area doesn't mean that you can’t go there. That's a business decision
15 you'll have to make based on other real estate companies’ market saturation and
16 strength.
17 You can determine how many homes are in a subdivision by using the MLS Tax
18 Search feature, by going to the county Property Appraiser website, or by using the
19 tax roll feature at Floridarealtor.org. You want to determine how many homes have
20 sold within the last year in relationship to the number of homes in the subdivision. A
21 turnover ratio between 10% and 15% would be good; anything less and it may not be
22 worth your effort and expense and may take a considerable amount of time to get
23 established.
24
25 Example:
26
27 You find out in your search that 93 homes have sold in the last year in a
28 subdivision of 700 homes. Take the number of sold homes and divide it by the
29 number of homes in the subdivision. This will give you the turnover rate. (93 ÷
30 700 = 13% turnover)
31
32 Establish yourself in your farm area by direct mail, phone calls, e-mails, or an
33 area newsletter. A combination of all methods would virtually ensure a quick success
34 in becoming known in your farm area.
35 Again, consistency is important. Contact your farm area at least twice in the first
36 month, after that a minimum of once a month and at the same time of the month. In
37 addition, be consistent in your message. Decide what you want your message to be
38 and carry it through all of your marketing materials.
39
40 • Past clients. As mentioned earlier, this business comes from work you have already
41 done. Since you have an established working relationship with these clients, they are
42 inclined to work with you again or refer you to their friends and relatives. The key
43 here is to keep in contact with them on a regular basis. Past clients should hear from
44 you at least twice a year. Send them a holiday card, New Year's card, letter, anything
45 with your name, picture, and phone number on it. Some licensees send out monthly
46 mailers to their past clients. There are even companies that will perform that service
47 for you. If you don't maintain some level of regular contact, these clients will tend to
48 forget about you in a relatively short period-of-time.
49
50 Prospecting through Marketing
51
52 Real estate has changed drastically over the past 10 years. For today’s real estate
53 professional, our business is now becoming advice based, not product based. Due to the
54 growth in popularity and availability of the Internet, consumers no longer need real estate
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1 professionals to find information about a property or market conditions. Today, the

2 consumer has access to county tax rolls, public records, subdivision plat maps, aerial views,
3 and market statistics. That’s just some of the information that is readily available.
4 It is imperative that you position yourself as an informational resource to the consumer.
5 You need to become a trusted real estate adviser. For you, there are two types of marketing
6 and, and it would be beneficial for you to understand the difference between the two.
7
8 • Push marketing. Push marketing is the traditional form of marketing that is used by
9 real estate professionals. Push marketing is defined as using various activities to get
10 your message in front of your ideal client. The marketer is in control of what the
11 message is, and how, when, and where it is seen. It still has its place for sure, but
12 you can no longer rely on it as your sole marketing method. If that’s the only method
13 you use, you run the risk of missing a large portion of the buyers and sellers in your
14 target market.
15 Push marketing includes:
16
17 o Mail outs o Radio
18 o Flyers o TV
19 o Newspaper ads o Cold calling
20 o Magazine ads
21
22 Studies show that consumers are bombarded by
23 over 5,000 marketing ads per day. Your ads are just one of many.
24
25 • Pull marketing. Pull marketing is about developing relationships that attract your
26 ideal client to you. It is social media in all its forms. In essence, the consumer
27 comes to you. Of course, you don’t want to wait for the consumer to stumble upon
28 you. It’s better for you to go out, find them, and bring them back.
29 The simple fact is that before long “generation Y” (your future customer) will
30 outnumber baby boomers and be the largest segment of the population. Over 96% of
31 your future customers are current members of and use
32 social media sites.
33 Consider using social media sites like Facebook,
34 Twitter, and LinkedIn as part of your pull marketing
35 strategy. If you like spending time on the Internet and
36 are good at writing and posting helpful tips, consider
37 starting a real estate blog and use Google Analytics to
38 track your results. As with all other forms of
39 prospecting, you must be consistent, or your results will suffer.
40
41 Tombstone Advertising vs. Direct Response
42
43 Tombstone advertising is any type of advertising that
44 is put in front of consumers whose results cannot be
45 measured.
46 Examples may include:
47
48 • Bus bench advertising
49 • Billboards
50 • Stadium advertising
51 • Radio advertising (to some degree)

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1 Direct response advertising is any type of advertising that can be measured by the direct
2 response of a consumer.
3 An example includes:
4
5 • A Google pay-per-click campaign can be measured by the
6 number of clicks.
7
8 Tombstone advertising can be turned into direct response advertising by including
9 tracking mechanisms.
10 Tracking mechanisms examples include:
11
12 • A tracking phone number included in a newspaper ad.
13 • A personalized URL or campaign-specific landing page included in a direct mail
14 campaign.
15
16 Using Color in Prospecting and Marketing
17
18 Color is an important detail that deserves your full attention when designing your
19 prospecting materials. Color can have a dramatic effect on your prospects; it can influence
20 their mood or their opinion of you before they even read the prospecting piece. The
21 message you want to convey to your prospect will be enhanced by the color you use, so
22 decide what your message will be and then choose the appropriate colors.
23 Consider these options:
24
25 • RED is a true attention getter. When you use red in your marketing
26 pieces, it will grab the reader's attention and their eyes will tend to look
27 there first. Use red to capture attention and get the prospects to take
28 action. Red is a very aggressive color.
29
30 • BLUE conveys an upscale image, an image of trust, experience, and
31 credibility. Blues tend to be very effective with older prospects.
32
33 • YELLOW is the color for happiness and a feeling of well-being. Yellow is
34 very lighthearted and welcoming and exudes energy. This applies to the
35 various shades of yellow and gold.
36
37 • GREEN is the opposite of red. It is neither threatening nor aggressive.
38 Green denotes that something is good for us and it ignites feelings of
39 nature.
40
41 Prospecting Tips for Success
42
43 Remember that prospecting is the lifeblood of the real estate business, and it never
44 stops. Your real estate business is built upon the prospecting you do and how effectively
45 you do it.
46
47 • Make time every day for prospecting. Take at least an hour or two a day to contact
48 new prospects.
49
50 • The prospecting never stops. Tough times never last, but tough prospectors do.
51 The more you prospect, the more successful you will be.

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1 • It's all about the numbers. The more people you talk to, the more successful you
2 will be. It's just that simple.
3
4 • Be consistent in your message. Do this with all of your prospecting. Whether you
5 are cold calling, sending e-mails or direct mail, or knocking on doors, the message
6 you convey must be consistent and to the point.
7
8 • Network, network, network. Try to use every social event as a networking
9 opportunity. Look at meetings, parties, soccer games, or Little League as networking
10 opportunities. Never go to lunch alone; always invite a potential prospect. Networking
11 expands your potential prospects exponentially.
12
13 • Don't take it personally. No one likes rejection. However, just remember: It's not
14 personal; it's business. Rejection is a very small part of prospecting.
15
16 • Never give up. Anyone can prospect for a week or two, but the true professional
17 never stops prospecting. The next big prospect is just around the corner and if you
18 quit now, you'll never have the opportunity to make their acquaintance. “No" means
19 "Not now but contact me later because I might need your help." If you give up and
20 stop prospecting to the same people, someone else will be there when they need
21 help and you will lose the opportunity,
22
23 • It's okay to say, “No.” If the seller or buyer is not motivated, it's okay to say, “No.”
24 Your time is valuable and if a prospect is not motivated, it's a waste of your time,
25 energy, and money.
26
27 THE LISTING PRESENTATION
28
29 All of your prospecting and networking will mean nothing if you get the appointment but
30 then don't get the listing. When you are face-to-face with the seller, you have to explain to
31 them why it is to their benefit to hire you. You only have one chance to do it and you have to
32 do it in a relatively short period-of-time. So, be prepared and know what you're doing.
33 The true key to success in the listing presentation is practice, practice, practice. After
34 you have built the listing presentation manual (discussed below), practice it until you know it
35 like the back of your hand. You should know exactly what you are going to say before you
36 ever arrive at the appointment.
37
38 Things to Bring to the Listing Presentation
39
40 You should bring the following items to the listing presentation appointment.
41
42 • The listing presentation manual (See “The Listing Presentation Manual” below.)
43 • All support material for the listing presentation, newspaper articles, magazine
44 articles, Internet articles, market statistics and facts
45 • Examples of all of your marketing materials
46 • The CMA (if you have prepared one)
47 • Two listing agreements completed with the seller’s information, except for the price
48 • Sellers Property Disclosure Statement
49 • Digital camera
50 • Laser rangefinder or tape measure to take measurements
51 • Legal pad
52 • Calculator and flashlight

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1 Start accumulating these items today. Make a copy of any articles that you see that are
2 relevant for use in your presentation. Keep any market statistics or data in support of your
3 presentation. Be sure to keep an eye out for marketing studies, particularly those that cite
4 Internet statistics. These can be valuable in your marketing presentation.
5
6 THE LISTING PRESENTATION MANUAL
7
8 It is extremely important to build a good listing presentation. Creating a good
9 presentation involves considerable time and effort over several weeks. Your presentation is
10 a work-in-progress. As you become more experienced and proficient, your presentation
11 evolves with you.
12 The importance of a professionally prepared listing presentation cannot be overstated.
13 It’s a mistake to think you can go to the appointment, sit face-to-face with a seller, and wing
14 it. All of your prospecting, cold calling, and canvassing will be worthless if you cannot close
15 the deal and get the seller’s listing. The more prepared you are, the more professional you
16 will appear, and the more likely you will be hired.
17 Concentrate on highlighting the things that make you different from the hundreds of
18 other real estate professionals from whom a seller can choose. Keep that in mind as you
19 start to build your listing presentation. Your presentation emphasizes who you are, how you
20 work, and how you market the seller’s property, but never lose sight of the fact that it's really
21 about the seller. Everything in your presentation must show the seller how you plan to reach
22 their ultimate goal, which is to sell their home. You must be able to explain to them how
23 each item in your presentation benefits them.
24 Your listing presentation manual contents are outlined below.
25
26 Front Cover
27
28 The front cover should display a picture of the seller's property with the seller’s name
29 and address, and your contact information. You can find photos and much more information
30 on most county appraisal websites that will assist you in creating the front cover.
31
32 Cover Letter
33
34 The cover letter should outline the information that you are giving to the seller and how
35 plan to work for them to sell their home.
36
37 Professional Resume
38
39 Your professional resume should list your professional qualifications.
40
41 Professional Affiliations
42
43 Your list of professional affiliations should include the professional organizations of
44 which you are a member. (You can combine this with your professional resume.)
45
46 Company Profile
47
48 Your company profile should give information about your company.

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1 Personal Profile
2
3 A good personal profile should include your experience, education, professional
4 affiliations, and community involvement. You can also add information about your
5 background, family, and hobbies, but this is optional. Keep your personal profile up-to-date.
6 As your business grows, so will your experience, education, and affiliations.
7
8 Comparative Market Analysis (CMA)
9
10 It’s always wise to arrive at the listing appointment with a good idea of the market value
11 of the home you are visiting. However, in many cases your first appointment with the seller
12 is also the first time you are touring the home. If this is the case, performing a complete
13 CMA before the appointment may prove to be difficult. This brings up a question as to the
14 value of a one-step listing appointment versus a two-step appointment.
15
16 1. One-step listing appointment. With easy access to just about everything on the
17 computer, you might be able to perform a CMA strictly from online records. The
18 problem is that although the values in each neighborhood fall within a certain price
19 range. When you are setting up an appointment for a listing presentation, one of the
20 first questions you should ask the seller is, “How much are you expecting to get from
21 the sale of your property?” Once you have that information, you can prepare a CMA
22 that supports the market value, and hopefully, the seller’s expectations.
23 Even with the best intentions, using this approach to prepare a CMA may not
24 make allowances (either negative or positive) for an individual property. The property
25 may have features that can’t be ascertained from public records, such as outdated
26 appliances, window air conditioning units, damaged floors or roof, or an overall
27 general poor condition. On the other hand, if the seller has updated the bathrooms,
28 installed new kitchen appliances, or freshly painted the entire home, you would have
29 no way to take that into consideration either.
30
31 2. Two-step listing appointment. A two-step listing appointment allows for some
32 reflection and comparison on your part. With the two-step approach, you can make a
33 pre-listing appointment with your seller in which you tour the property for 10 to 15
34 minutes while taking notes. After the tour, you can perform the CMA, develop a
35 suggested asking price, and provide that information to the seller at the second
36 appointment.
37 Although the two-step listing approach seems to be the preferable approach, it’s
38 not always possible to make it happen. Sometimes, the seller expects to list their
39 property directly after the first appointment. You may be in a position either to take
40 the listing immediately or risk losing it. When this happens, you should use your best
41 judgment and knowledge of the local market when counseling the seller on the
42 asking price. Then, immediately following the appointment, perform a complete CMA
43 as backup if the listing price turns out to be too high and a price reduction is in order.
44
45 Marketing Plan
46
47 A custom-designed marketing plan is the most important part of the listing presentation.
48 The marketing plan shows the seller how you are going to advertise, market, and sell their
49 home. Be creative and utilize all of the tools at your disposal to build your marketing plan.
50 (See The Advertising Plan later in this chapter for more detail.)

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1 If there are other services that you can provide, include them in your marketing plan.
2
3 Example Marketing Statements:
4
5 Specifically, I will market your property through:
6
7 • Community and school reports to all • Multiple listing service (MLS)
8 buyer prospects • My website
9 • Company website • Notification to all potential buyers in
10 • Direct email notices my database
11 • Direct mail and email campaigns • Notification to the area's top 50 real
12 • For sale sign estate licensees
13 • Home highlight sheets to all agents in • Open houses
14 my company's local offices • Real estate broker tours
15
• Local real estate paper • www.REALTOR.com
16
17
18 I will also provide you with these additional services:
19
20 • Help you determine the best asking • Pre-qualify potential buyers.
21 price. • Present and discuss each offer with
22 • Offer proven advice on how to you and provide a "cash in pocket"
23 prepare your property for showings. statement.
24 • Call you regularly and provide you • Negotiate the highest possible price
25 with a Customer Service Web Page and best terms for you.
26 so you stay fully informed of • Manage all contractual, title, and
27 everything I do to sell your home. transaction details and keep you
28 • Provide feedback from all showings informed.
29 and open houses. • Ensure your check is delivered at
30 • Update you on money market closing.
31 changes that could affect your • Arrange for a moving company and
32 property's sale. relocation agent, if required.
33
34 Brokerage Comparison Chart
35
36 A brokerage comparison chart should show how your services compare to that of other
37 brokerage offices.
38
39 Client Testimonials “Bob Broker is a relationship-
40 driven professional who has a
41 Client testimonials can be an excellent high attention to detail and
42 source of credibility. The testimonials must be works diligently to ensure a
43 real and from your past or present clients. If you positive outcome for his
44 feel you've done an excellent job for a client, ask
clients. He sold our house in
45 them for a written testimonial. Most clients are
four weeks! Thanks, Bob!
46 happy to oblige.
You’re the best!”

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1 Note: The Federal Trade Commission (FTC) investigates claims of false or misleading
2 testimonials. If found guilty, the penalties can be severe.
3
4 Support Materials
5
6 Support materials include everything else you need to complete the listing presentation.
7 These materials consist of any newspaper articles, magazine articles, and statistical
8 information that support your listing presentation. Make sure this information is organized
9 and easily available when needed.
10 You might be able to use presentation materials that are provided by your company or
11 broker. The MLS has professionally prepared presentation templates for your use; all you
12 have to do is customize them.
13
14 Home Preparation and Staging Tips
15
16 A document with tips on how to prepare their home for sale should list general
17 suggestions to your seller about possible repairs or maintenance needed before placing
18 their home on the market. (See below.)
19 Home preparation and staging tips can be extremely helpful to sellers; especially those
20 who have owned their homes for some time and are unaware of how to make their home
21 appealing to a broad range of potential buyers.
22 Buyers start forming an opinion about a home in as little as two seconds from walking
23 through the front door; they solidify that opinion within the next 20 seconds. For this reason,
24 first impressions are crucial. Buyers begin judging a home the moment they see it. Buyers
25 look for homes that are in move-in condition and free of clutter; homes they can actually
26 visualize themselves living in. We call it emotional possession. These tried and true tips are
27 extremely cost-effective, and can produce substantial results. Make sure you convey this
28 message to your sellers. Let them know you are familiar with the way buyers react, what
29 they see as negatives and positives in their home and discuss it with them. That way when
30 potential buyers preview their home they won’t be surprised or disappointed when these
31 types of comments are made.
32 A document with tips on how to stage the home for showing should give suggestions to
33 the seller regarding how to
34 stage the home in order to
35 appeal to the largest cross-
36 section of buyers.
37 The combined preparation
38 and staging tips are provided on
39 the next page.

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1 Home Preparation Tips

2 Exterior
3 Mow and rake the lawn, trim hedges, remove weeds, and edge
4 1.
gardens.
5 2. Sweep sidewalks and driveway; pick up any litter.
6 3. Repair gutters and eaves; touch up exterior paint.
7 Plant extra flowers for color, or place potted plants beside the front
8 4.
door.
9 Clean or paint front door, polish front door hardware, ensure that
10 5.
the doorbell works.
11 6. Oil squeaky doors, inside and out.
12
7. Clean windows inside and out.
13
Interior
14
Clean and tidy up the entrance, clear stairs and halls, store all
15 1.
excess furniture.
16
17 2. Brighten interiors with fresh, light-colored paint.
18 Brighten rooms by installing high wattage light bulbs and turn them
3.
19 on.
20 Remove family pictures. Buyers want to take ownership while they
21 4. tour a home. The presence of family pictures makes it more difficult
22 for them to do this.
23 5. Remove accumulated clutter and unnecessary decorations.
24 6. Shampoo carpets, clean and wax floors.
25 Organize kitchen countertops to make them look more spacious. To
7.
26 do this, remove unnecessary appliances and clutter.
27 8. Clean kitchen countertops, cabinets, appliances, and dish washer.
28 9. Organize and clean out closets to make them look larger.
29 Clean and freshen up bathrooms, put out clean towels, and reduce
10.
30 clutter.
31 11. Remove any mold from the tile in the bathrooms.
32 12. Replace caulking and tile grout in bathrooms and kitchen.
33 13. Clean mirrors so they sparkle.
34 14. Organize and clean the garage.
35 Perform necessary minor repairs and touch-ups to walls, windows,
36 15.
fixtures, etc.
37 Home Staging Tips
38 Do not be at home during the showing. Buyers feel more
39 1. comfortable to make comments or ask questions when the seller is
40 away.
41 Turn on the air conditioner or heat to achieve an interior
42 2.
temperature of 72°F.
43 Open the drapes or blinds and turn on all of the lights in every
44 3.
room.
45 Turn on the sound system to play quiet background music. Turn off
46 4.
the TV.
47 5. Keep pets outdoors or in a kennel during the showing.
48 6. Remove clutter from kitchen counters and tables.
49 7. Keep the front yard free of bicycles, toys, and other clutter.
50

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1 Moving Preparation Checklist

2
3 Once you acquire the listing, the moving preparation checklist below titled “Before the
4 Move” is a great asset to sellers.
5
6
7
8 Before the Move
9
10 8 Weeks before the move:
11
_____ Get estimates from three professional movers.
12
13 Contact the Chamber of Commerce of your new town to get their Residential Information
14 _____ Packet.
15 6 Weeks before the move:
16
_____ Inventory everything; decide what to move, sell, replace, or donate.
17
18 _____ Complete change of address forms at your local post office.
19 Obtain copies of all medical, dental, legal, and accounting records for your family, and
20 _____ veterinarian records for your pets, if applicable.
21 _____ Review moving related costs, including packing, loading, special charges, and insurance.
22
23 4 Weeks before the move:
24 _____ Advertise the sale of unneeded furniture, accessories, clothes, etc.
25
_____ If moving yourself, secure boxes, packing material, tape, markers, etc.
26
27 _____ Arrange for short- or long-term storage, if necessary.
28 _____ Make travel arrangements for pets, if necessary.
29
2 Weeks before the move:
30
31 _____ Prepare your car for the trip; check tires and make repairs, if necessary.
32 _____ Cancel newspaper subscriptions and other delivery services.
33
Pack any items that you don’t need until after the move, or those items that will be put in
34 _____ storage.
35
36 _____ Gather all packing materials and equipment.
37 1 Week before the move:
38 Organize important papers, records, and valuables for protected shipment or storage in a
39 _____ safe deposit box.
40
_____ Notify friends and neighbors of your new address and contact information.
41
42 _____ Fill any necessary prescriptions or medications that you’ll need for the next two weeks.
43 _____ While packing, combine items that will go together in your new home.
44
45 Moving day:
46 _____ Get cash and certified checks to pay movers, etc.
47 _____ Pack valuables, financial records, and personal papers to keep with you.
48
49
50 Have fun and enjoy your new home!
51

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1 MAKING YOUR PRESENTATION A SUCCESS

2
3 There are many ways in which to make your presentation a success. We will discuss
4 some of those ways in the following pages.
5
6 Be on Time
7
8 One of the easiest things you can do to make your
9 presentation a success, is to make good first impression.
10 An important part of that is to be on time to the
11 appointment.
12 If you are too early, you may interrupt the seller’s schedule as they finish a meal or are
13 trying to clean up. This may be very upsetting to them.
14 If you arrive late, the seller may think that you aren’t interested in securing their
15 business, are unorganized, or, worse yet, don’t keep your word.
16 Remember, this appointment is all about them. If you are late, refrain from a long-winded
17 explanation about why you are late. Stick to their topic of interest, which is all about their
18 wants and desires.
19
20 Appropriate Dress
21
22 The way you dress speaks volumes about who you are as a person and as a real estate
23 professional. You will not get a second chance to make a first impression. You don't have to
24 say a word; people will think one thing if you're dressed in jeans, and another if you're
25 dressed professionally. It doesn’t matter who you are, your clothes will speak for you.
26 Some of the perceptions people may form solely from your
27 appearance are your:
28
29 • Professionalism
30 • Intelligence
31 • Credibility
32 • Income
33 • Sophistication
34
35 These perceptions, whether real or imagined, accentuate how your
36 appearance instantly influences the opinions of all those with whom you
37 come into contact. Being well dressed in a business setting can
38 influence not just perceptions, but also your success.
39
40 Keys to a Successful Listing Presentation
41
42 There are five key steps to a listing presentation. Each is critical to your success in the
43 listing process.
44
45 Step 1 Take Control
46
47 It is imperative for you to take control of the entire listing appointment. This starts
48 when you approach the front door. Take one-step back from the door to ensure that you
49 don’t invade the homeowner’s space when he or she opens the door.
50 Take detailed notes of the home’s features. While viewing the home, it is critical that
51 you start to build rapport with the seller by casual conversation. Ask relevant questions
52 to gather information about their needs, their timeframe, the price they may have in

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1 mind, and their level of motivation. Be sure to view the entire home, including the garage
2 and exterior.
3 Once the tour is complete, ask if you can sit in the kitchen to talk. The kitchen is
4 usually reserved for friends and family, and you want to be thought of that way. Sitting in
5 the kitchen will go a long way toward reaching that goal. If the kitchen does not have an
6 eat-in area, the dining room will work. However, never sit in the living room.
7 The living room is formal and reserved for guests; you do not want to be thought of
8 as a guest. You'll give up total control of the listing presentation if you are sitting in the
9 living room. Always try to sit in the kitchen, if available.
10 If there is more than one seller, be sure to sit so that you can see and talk to all them
11 at the same time. One way to accomplish this is for you to sit on one side of the table
12 and the sellers on the other. It is imperative to make eye contact with all of your sellers
13 at the same time without having to look back and forth.
14
15 Step 2 Qualify the Seller
16
17 If you asked the right questions during the home tour, you should have a good idea
18 of the seller’s level of motivation. By now, you should know if they are motivated to sell
19 and if they are realistic regarding the price and amount of time it may take to sell their
20 home. If you haven't been able to get a clear picture by this point, you need to ask more
21 questions. Be careful not to just promote all the wonderful programs your company
22 offers but, take the time to interview your seller, thereby gaining valuable information.
23 If you are dealing with a seller, whose home did not sell the first time they listed it
24 (expired listing), start by asking why they feel their home did not sell. In many cases, the
25 seller may feel it was the previous broker’s fault. Be sure to ask the proper questions to
26 ascertain exactly what the previous broker did or did not do. This approach will provide
27 insight into what the seller feels is important, and you can stress those things when you
28 talk about your services.
29 It is a good practice to always ask everyone the same questions. Have them in
30 writing. This statement might help you to transition into your seller interview sheet: "I
31 take personal interest in making sure to fulfill all of your needs. For this reason, I have a
32 list of questions and would like to take note of your answers, so I can make sure I have
33 all of your needs listed." This habit will help you to ask all the questions and never be
34 challenged or doubted about the reason why you ask certain questions. This might avoid
35 the possibility of the questions being interpreted as discriminatory.
36 A carefully planned seller interview will help you understand the seller’s motivation
37 and expectations. Suggested questions to use in the interview include:
38
39 • When did you first start thinking about selling your home?
40 • Why are you moving?
41 • How long have you lived in this home?
42 • What was your original purchase price?
43 • What made you want to buy this house?
44 • What improvements have you made to your home?
45 • If you could change anything about your home, what would it be?
46 • What distinguishing features do you like about your neighborhood?
47 • Are there any negatives to this neighborhood? (Such as HOA, traffic, etc.)
48 • How did you arrive at your asking price?
49 • Where are you planning to move?
50 • When would you like to be in your new home?
51 • In listing your property, what is most important to you? Price, timing, or
52 convenience?
53 • What would happen to your plans if you did not sell?

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1 • Whom else have you been talking to about the sale of your home?
2 • Do you have to sell your present home to buy a new one?
3 • How do you feel about owner financing?
4 • What is the approximate balance on your present mortgage?
5 • What would it take to get your home listed with me today?
6
7 If you find that the sellers are not realistic about price or do not appear to be
8 motivated about the sale of their home, it may not be worth your time, effort, and money
9 to take the listing. That's a decision you will have to make.
10
11 Step 3 Sell Yourself
12
13 You are now face-to-face with the seller and have their complete attention. Now is
14 your chance to tell the seller what makes you different from other agents. Make sure that
15 they know your “point of difference.”
16 To do this, following the steps below to make your listing presentation.
17
18 • Lay out the presentation manual on the table in front of you, facing the home
19 seller. Do not hand it to them. Tell the seller that you’d like to start by telling them
20 a little bit about who you are, how you work, and exactly what you can do for
21 them. Tell them that after that you’ll talk about where you feel they stand in the
22 marketplace.
23
24 • Open the presentation manual to the page about your credentials and explain it
25 briefly. When talking to the seller, keep the emphasis on them by saying
26 something like, “Would it be important to you to work with someone who has the
27 highest professional designations in the industry? Well, as you can see, I have
28 the following designation, and this is what it means to you.”
29 Do the same with your professional affiliations, using the same phrases,
30 “Would it be important to you…?”
31 Then talk about your company. Explain what makes your company special
32 and why that is important to the seller.
33
34 • Next, talk about your marketing plan. If you present this plan properly, the sellers
35 will be more than ready to hire you, even before you bring up the subject of their
36 home’s value. It is critical that you present your marketing plan in a fashion that
37 separates you from the thousands of other realtors. Make sure at all times to
38 explain why it is critical to the seller that they have your services.
39 You may encounter some objections or questions about your marketing plan
40 from the seller at this point. If the seller raises some objections, deal with them
41 when raised. Most objections come up after you discuss the CMA and price.
42
43 Step 4 Discuss the Listing Price
44
45 Discuss the CMA next if you prepared one. Be as detailed or as brief as the seller
46 wants to be with this section of your presentation. Explain the market conditions that
47 exist in their area or building. After presenting your CMA, but before giving them your
48 opinion of value, ask them what price they had in mind.
49
50 • If their price is in line with yours, that’s great.
51 • If their price is substantially higher than yours, ask them how they arrived at that
52 number.

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1 • If they won't tell you what price they had in mind or if their price is substantially
2 different, you will have to reveal your price opinion and overcome their
3 objections, if any.
4
5 If the seller is not realistic about the value of their home and you are not able to
6 overcome their objections, you may want to consider declining the listing.
7
8 Step 5 Close the Listing
9
10 Once you and the seller have discussed the price, it’s time to ask for the listing. Pull
11 out your listing agreement form, ask for the listing, and wait for a response. Ask them
12 what price they have decided upon, fill in the blank where it says price, and then go over
13 the agreement with them. Cover all the important features, including the price, the term
14 of the listing, and the commission. Make sure the sellers sign and initial everywhere
15 required. You also want to make sure that the seller fills out the Sellers Property
16 Disclosure at the time of listing.
17 While the sellers are signing the agreement and filling out the property disclosure
18 statement, ask permission to take pictures of the property. Make sure you take pictures
19 of both inside and outside.
20
21 Things to Tell the Seller at Time of Listing
22
23 Once your seller has agreed to give you the listing, you must provide them with an
24 Agency Relationship Disclosure Notice, unless you are acting as a transaction broker. The
25 following is additional information you should tell your seller at the time of listing.
26
27 • How you will communicate with them. Be sure to get all of their contact information,
28 including home phone, cell phones, work numbers, and e-mail address.
29 • How they can communicate with you.
30 • How you will handle showing appointments.
31 Be realistic about the number of showings
32 once the property is on the market.
33 • Tips for staging the home for showings (in
34 your listing presentation).
35 • Why it’s important for them not to be home
36 during showings.
37 • The use of a lockbox.
38 • How you will handle any offers to purchase
39 on their home.
40
41 You don't need to obtain all of this information at the listing appointment. However, you
42 should get the information from the seller as soon as possible so that you will be prepared
43 once a contract comes in.
44
45 • The seller’s Social Security number
46 • A copy of their prior title policy
47 • Contact information for the homeowner association, condo association, or
48 management company
49 • Mortgage information, including loan number and contact information
50 • Seller Property Disclosure Statement

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1 LISTING CONTRACTS
2
3 A listing contract is an employment agreement between your broker and a property
4 owner, which establishes the agreed-upon terms, such as asking price, term of the listing,
5 obligations of the owner, and obligations of the broker under the contract. The listing
6 contract must also state the amount of commission the owner will pay and the condition of
7 employment for earning the commission.
8 In Florida, a listing agreement may be oral, written, or implied. However, you are best
9 protected by a written listing contract.
10 If the listing contract is written, it must contain the following items:
11
12 • A definite termination date of the agreement
13 • The complete legal description of the property
14 • Price and terms offered
15 • A promise of compensation and the specifics of that compensation
16 • Signatures of all property owners and the broker or licensee
17
18 A listing contract cannot contain an automatic renewal clause. You must provide the
19 owner with a complete copy of the agreement within 24 hours of signing.
20
21 Types of Listing Contracts
22
23 • Open listing. An open listing means that the owner agrees to pay a commission to
24 any broker who provides a buyer willing to purchase the property under a price and
25 terms agreeable to the owner. An open listing is a one-sided or unilateral contract.
26 It is only binding upon the owner to pay the commission upon performance by the
27 broker. The broker has no obligation to perform.
28 An owner can give an open listing to any number of brokers.
29 An open listing cannot be placed in the MLS.
30
31 • Exclusive agency or exclusive listing. An exclusive agency or exclusive listing
32 means that the owner can list the property with only one broker. This type of listing is
33 a bilateral contract. It is binding on both the broker and the owner. All other brokers
34 are required to work through the listing broker.
35 The owner agrees to pay the commission to the listing broker if the broker
36 performs under the terms set forth in the listing contract.
37 The owner reserves the right to sell the property himself or herself, in which case
38 the owner will owe no commission to the listing broker.
39 An exclusive listing may be placed in the MLS.
40
41 • Exclusive right of sale listing. An exclusive right of sale listing must be in writing
42 and signed. This type of listing is a bilateral contract. The owner can list with only
43 one broker and the owner agrees to pay the listing broker regardless of who actually
44 finds the buyer.
45 The owner will owe the commission even if he or she procures the buyer or the
46 property sells through another broker during the term of the listing.
47 Without a doubt, a broker is best protected by this type of listing agreement.
48 An exclusive right of sale listing may be placed in the MLS.

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1 • Net listing. A net listing is not, technically, a type of listing agreement. You could
2 structure any of the three types of listing contracts above as a net listing.
3 In a net listing, an owner sets a minimum amount that he wants to receive from
4 the sale of the property. The broker’s commission is any amount above the set
5 minimum, provided that amount does not exceed the commission amount agreed
6 upon in the listing contract.
7
8 Example:
9
10 Patrick, the seller, tells Alice, the broker, that he wants $225,000 from the sale of
11 his home. Alice sells the home for $275,000, so Alice receives a $50,000
12 commission. If however, the maximum commission amount allowed according to the
13 listing contract is $30,000, Alice must give the excess of $20,000 from the sale to
14 Patrick. She cannot make more than the agreed-upon $30,000 commission.
15
16 Net listings are illegal in many states because they give unscrupulous brokers an
17 opportunity to take advantage of a seller who may not know what his or her property
18 is truly worth. However, net listings are legal in Florida, although they are generally
19 discouraged. Although the seller gets what he or she wants for the sale, it creates a
20 conflict of interest for the broker. It essentially violates the broker’s responsibility of
21 putting the client’s interests above his or her own.
22
23 Preparing Contracts
24
25 Real estate brokers or their affiliated licensees can prepare real estate contracts, listing
26 agreements, basic option contracts, and buyer broker agreements. It is paramount for you
27 you know the listing, as with any other contract, you are asking your customer and client to
28 sign. How can you expect them to trust you in negotiating a contract on their behalf if you
29 did not take the time to read, learn, and understand the contract you are asking them to sign
30 where you are directly interested?
31 Brokers may prepare only a lease that is approved by the Florida Supreme Court. Using
32 the prepared lease form, licensee may only fill in the blanks and may not delete anything
33 from or add anything to the lease. The lease cannot be for a period of more than one year.
34 A broker cannot prepare contracts for deed, mortgages, deeds, assignments or
35 assumptions or leases other than ones approved by the Florida Supreme Court.
36 Licensees should refer their clients to an attorney for preparation of any complicated
37 option contracts or purchase and sales contracts.
38
39 Example: Preparing an Exclusive Right of Sale Listing Agreement
40
41 It is extremely important that you fill out the listing agreement completely and
42 correctly at the time of listing. This will ensure that the seller complies with your
43 agreement, and you receive compensation for your efforts.
44 In the following pages, we provide you with instructions on how to complete the
45 Exclusive Right of Sale Listing Agreement (Form ERS-18tb Rev 5/2020) as approved by
46 the Florida Association of REALTORS. (For the complete form, see the Forms section of
47 this book.) (This was the current form at the time this book was printed.)
48
49 When talking with the seller it is always preferable to refer to the listing contract as an
50 agreement, as in “would you mind signing our agreement.”
51 When filling out a listing agreement, never leave a space blank. If something does not
52 apply, enter either a zero or N/A.

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1 How to Complete the Exclusive Right of Sale Listing Agreement

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26 Line 2: Write in the complete name of the seller(s). If only one name shows on the tax
27 roll as the owner, but you are certain they are married, always add the name of
28 the spouse who does not appear on the tax roll. You may not be able to sell the
29 property without the spouse’s permission.
30 Line 3: Write in the complete name of your brokerage company.
31 Line 4: 1. Authority to Sell Property:
32 Lines
33 5 - 6: Enter the beginning and ending dates of the agreement, which is usually a 180-
34 day period to start.
35 Line 12: 2. Description of Property:
36 Line 13: (a) Street Address: Write in the complete street address of the property.
37 Lines
38 15 - 16: Legal Description: Enter the complete legal description of the property. If you
39 need more space for the legal description, check the “See Attachment” box and
40 include the legal description on an addendum.
41 Lines
42 17- 18: (b) Personal Property, including appliances: List all of the personal property
43 (including appliances) that is included in the sale. For example: window
44 treatments as placed, carpeting as placed, fixtures as placed, pool equipment as
45 placed, hot tub or spa, and so on. If you need more space, check the “See
46 Attachment” box and include a separate addendum.
47 Line 20: (c) Occupancy: Check the applicable box. If occupied, enter the lease expiration
48 date.

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1 Page 1 (cont’d.)
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15 Line 21: 3. Price and Terms:
16 Line 22: (a) Price: Enter the agreed-upon asking price when you know it.
17 Line 23: (b) Financing Terms: Check the applicable financing term boxes. If other, write
18 in what that means.
19 Lines
20 24 - 25: Seller Financing: Check the box and fill in the blanks if the seller will hold a
21 purchase money mortgage.
22 Lines
23 26 - 28: Assumption of Existing Mortgage: Check the box on line 26 if the seller's
24 mortgage is assumable and enter the amount of that mortgage. Indicate any
25 assumption fee on line 27, along with the term of the mortgage and the year it
26 began. On line 28, enter the interest rate of the assumed mortgage and check
27 the box as to whether it is fixed or variable.
28 Line 29: Check the appropriate box regarding lender approval assumption.
29 Line 37: (c) Seller Expenses: If the seller agrees to pay mortgage discount points or
30 other closing costs, enter the percentage number.
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40 Line 39: 4. Broker Obligations:
41 Line 41: 5. Multiple Listing Service:
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45 Note: Seller and broker should initial the bottom of each page in the spaces provided.

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29 Line 49: 6. Broker Authority:
30 Line 50: (a) Market the Property to the Public …
31 Line 58: Check this box if the seller wants the property displayed on the internet.
32 Line 60: (i) Check this box if the seller does not authorize Broker to display the property
33 on the MLS.
34 Line 65: Seller initials here if they checked the box on line 60.
35 Line 68: (e) Check the box on this line if the seller agrees to use a lock box system to
36 show the property.
37 Line 72: Check either or both of the boxes, if needed, that say “Withhold verbal offers” or
38 “Withhold all offers once Seller accepts a sales contract for the Property.”
39 Line 80: Check this box if the seller does not authorize an automated estimate of market
40 value.
41 Line 82: Check this box if the seller does not authorize third parties to write comments or
42 reviews about the listing.

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19 Line 84: 7. Seller Obligations:
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21 99-102: (g) If the seller makes any material-facts disclosures, write them in here. You
22 should also be using the Seller's Property Disclosure Statement.
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39 Line 106: 8. Compensation:
40 Line 109: (a) Enter the percentage of the commission, or, if it is a fixed dollar amount write
41 in the amount.
42 Line 112: (b) If the seller is willing to enter into an option agreement, enter the percentage
43 or dollar amount of the option money you will receive at the time the option is
44 created. Discuss this amount with your broker.
45 Line 115: (c) If the seller is willing to enter into a lease, enter the percentage of the lease
46 value or the dollar amount you will receive if the seller enters into the lease
47 agreement.

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1 Page 3 (cont’d.)
2 Line 122: (d)(3) Enter in the number of days that you would be protected after the listing
3 expires for buyers to whom you introduced the property. This period of time is
4 solely at your discretion. Time periods of 90 to 180 days are typical.
5 Line 127: (e) Enter a percentage of the deposits you would be entitled to receive if the
6 seller retains the escrow deposit as liquidated damages.
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13 Line 130: 9. Cooperation with and Compensation to Other Brokers:
14 Lines
15 133 - 136: Check the box that applies to the brokerage relationship of the buyer’s broker as
16 either a single agent, transaction broker, or no brokerage relationship with the
17 buyer. Enter the percentage of the total commission or fixed dollar amount for
18 that brokerage relationship. If none of the relationships apply, check “None of the
19 above.” If this box is checked, you cannot put the property in the MLS.
20
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25 Line 137: 10. Brokerage Relationship: Florida law requires that real estate licensees
26 disclose their relationship to both buyers and sellers. This paragraph of the listing
27 agreement satisfies your disclosure requirement for the seller.
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34 Line 142: 11. Conditional Termination:
35 Line 144: Enter the amount of the cancellation fee you would receive if the seller wishes to
36 cancel the listing agreement before its expiration date. This amount can be
37 whatever amount you and the seller agree upon at the time of listing.
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46 Line 149: 12. Dispute Resolution:
47 Line 154: Arbitration: The seller, you, and your broker must initial here to indicate that all
48 parties agree that any disputes not resolved by mediation will be settled through
49 neutral binding arbitration.

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22 162-166: Miscellaneous (cont’d.)
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24 167-179: 14. Additional Terms: Enter any additional terms or agreements with the seller
25 that are not covered elsewhere.
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46 180-187: Have the primary seller date and sign on line 180. Write in all of the seller's
47 telephone numbers home, work, cell, and fax. It is critical that you have all
48 available contact information. Write in the seller's address if it is different from the
49 address on the listing agreement. Enter the date and have the seller sign. Enter
50 the information if there is another seller. (Remember to enter N/A if there is no
51 information to enter. You can’t leave a space blank.)

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1 Page 4 (cont’d.)
2 Lines
3 188-190: Enter the date and sign your name. Enter the name, phone number, and address
4 of your brokerage firm.
5 Line 191: Enter the date that a copy of the listing agreement was delivered to the seller.
6 Check the applicable box for the method of delivery.
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10 Note: Remember to initial the bottom of each page.
11
12 SERVICING THE LISTING
13
14 Communication
15
16 It might seem to most people that the major dissatisfaction that sellers have with real
17 estate licensees is their failure to sell the property during the listing period. However, the
18 truth is that the primary criticism sellers have about their brokers is, actually, lack of
19 communication. Sellers often complain that once the listing agreement is signed, the broker
20 puts up a sign in the yard and then disappears.
21 Their home becomes one of many properties on the market that may be shown
22 occasionally. The sellers find a business card on a table indicating that someone came
23 through, but they often don’t get feedback on how the showing went. Sellers can feel
24 cheated or angry when the person who so powerfully presented the reasons why he or she
25 should get their listing seems to be so unavailable once the papers have been signed.
26 One reason sellers may start having negative feelings is that the broker did not
27 effectively prepare them for what would be happening during the first days of the listing
28 period and beyond. During the first few days, you are doing numerous property marketing
29 tasks of which your sellers may not be fully aware, such as preparing flyers and ads, getting
30 the property information into the MLS, etc. While you are busy being busy, your sellers are
31 at home waiting for the rush of potential buyers, which usually doesn’t happen in the first
32 days.
33 With a little planning and forethought, you can make your seller feel like a partner in the
34 selling process by keeping the lines of communication open and flowing. Once you have
35 secured the listing, tell your seller what to expect in the first few days. Set the expectation
36 and fulfill your promises. Ask them, “How do you want to be contacted? By phone, email, or
37 text?” and add the task to your CRM. Here are a few things you can do to help them.
38
39 • Inform them that your broker will be sending them a letter. Most brokers send a
40 “thank you for listing with our firm” letter to new clients to introduce themselves and
41 to invite the seller to call the broker directly if any problems occur.
42
43 • Before you leave the house, install a lockbox. The lockbox holds the key to the
44 home. Brokers can access the lockbox either by using a special lockbox key or an
45 electronic keycard. Install the lockbox on the doorknob, a metal railing, or some other
46 stationary object. Electronic lockboxes keep track of who opened the property, and
47 when, thus making it easier for you to follow up with the broker if necessary.
48
49 • Meet with the seller a day or two after the listing appointment to go over your specific
50 marketing plan with them. At this meeting, go through the home again to re-
51 familiarize yourself with its features and make note of any particular suggestions you
52 might have.
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1 • Throughout the listing period, continue to give your client tips, ideas, or suggestions
2 on what they can do to help market the property. Keep them aware that selling their
3 home is a team effort.
4
5 • Install a sign in the front yard. Signs attract buyers and since your phone number is
6 on the sign, the buyer will contact you, opening the door for you to handle both sides
7 of the transaction. The seller will also get more activity on their home. It's a win-win
8 for both you and the seller.
9
10 Weekly Activity Report
11
12 An important part of your seller communication is a weekly activity report. Many
13 licensees choose to send a monthly report because it looks like there has been more
14 activity. Remember, frequent communication with your seller is vital, so the weekly contact is
15 best. Let your seller know that your weekly report will include:
16
17 • Number of inquiries on the property that week
18 • Number of showings
19 • Advertising done that week
20 • Open houses held and the number of visitors
21 • Comments made by other agents or prospective buyers
22
23 You can also send along copies of any ads you placed that week, a copy of the MLS
24 pages, copies of pages from any websites where the property has been listed, and
25 information about any e-mails that you sent to promote the home.
26 It’s critically important to maintain contact with your seller, even during those weeks
27 when there has been little or no interest in the property.
28
29 Advertising Plan
30
31 Be sure to share your advertising plan with your seller. They need to know the schedule
32 of when and how you will advertise their property.
33
34 Listing Agents
35
36 When you get a listing in a location, consider finding which agent had a listing recently
37 in that location and sold the property. You could contact them and explain that you have a
38 new listing there and see if they might still have buyers who saw their listing in the past and
39 either did not like the property or were not able to buy it on time. With some creative active
40 forward thinking, you can sell your listing in a few days. Creating a name for yourself as the
41 IDEAL listing agent.
42
43 Flyers
44
45 Flyers are also called property briefs. These printed pieces describe the home’s
46 features. They usually have at least one photo, sometimes several. They also include any
47 Internet address where potential buyers can get more information about the property. Leave
48 a large supply of flyers at your seller’s home, so each visitor can pick one up. You can use
49 the flyers in several other ways, as listed below:
50
51 • Place in information boxes or tubes attached to the For Sale sign.
52 • Distribute at open houses.
53 • Deliver to brokers from other offices.

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1 • Distribute to your own firm’s brokers.

2 • Mail out in response to telephone or e-mail inquiries.
3
4 Classified Ads
5
6 Prepare a number of good, classified ads so you can avoid repetition when you’re on a
7 short deadline. Also, prepare an open house ad and one for use in a homebuyer’s guide if
8 your firm uses real estate guides as an advertising venue.
9 A time-tested method for writing good advertising is
10 referred to as the AIDA standard. The AIDA standard says that A = Attention
11 if you want your ads to get results, they must capture the
12 reader’s Attention, arouse Interest in your product, create a I = Interest
13 Desire for the product, and then prompt the reader to Action. D = Desire
14 A = Action
15 • Attention. In order for your ad to capture the attention
16 of the reader, it must look different from all of the other
17 real estate ads in that same media. Your ad should be attractive enough to
18 encourage the readers to keep reading. Whatever you choose to do, this step is
19 critical. You can’t deliver your message to the reader until you’ve grabbed his or her
20 attention.
21 Some suggestions include:
22
23 o Try using bold type, all CAPS, or a unique-looking font for the headline.
24 Headlines are read 10 times more often than the body of an ad, so make sure
25 yours is a good one.
26 o Use color, if available. (Refer to an earlier section in this book.)
27 o Be clever. Asking a question or making a bold statement as your headline could
28 work well.
29 o Vary the layout, making use of white space in creative ways.
30
31 • Interest. Once you’ve captured the reader’s attention, you need to keep it is to
32 arouse interest. One of the best ways to stimulate interest is to peak the reader’s
33 curiosity about what you are offering. Excite the reader’s imagination with statements
34 that allow them to picture themselves in the setting, enjoying the features and
35 benefits of the property. Some examples are:
36
37 o Entertain friends and family in the state-of-the art home theater.
38 o Relax while enjoying your favorite beverage on the deck of the large swimming
39 pool.
40 o Tuck yourself into the quiet of the den/library with its unique free-standing
41 fireplace.
42 o Delight in the luxury of the two-person whirlpool tub.
43
44 • Desire. Once you have the reader’s attention and interest, the ad must continue to
45 paint a picture of the property that will appeal to the reader’s emotions, thereby
46 creating desire for the property. The ad must build the reader’s desire to see the
47 property. By using clear and concise language, you’ll tell the reader what they need
48 to know to be able to picture themselves as the owner of the property. Avoid
49 exaggeration; just use the facts. Your ad should inspire the reader’s confidence in
50 your firm and your product.

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1 • Action. If you have succeeded in generating attention, interest, and desire, your ad
2 should then prompt action from the reader. The actions you want your reader to take
3 include:
4
5 o Call you or your office
6 o E-mail you or your office
7 o Visit your office
8 o Visit your website
9 o Attend an open house
10
11 Be sure to include your contact information in all of your ads.
12 It’s the only way to track them for results.
13
14 Multiple Listing Service (MLS)
15
16 Take the time to enter the listing into the MLS correctly with all of the property details,
17 professionally written remarks, detailed directions, and up to 28 color photos.
18 Typically, numerous properties will come up during an MLS search and the broker will
19 look through the full listing sheets, glancing at the remarks to find the best choices to show
20 to the buyers. The broker cannot show all of the properties on one showing date, so you'll
21 need to catch the attention of the agent immediately. You want to get your listing on the
22 brokers’ short list, so make your listing stand out by sounding better than the others do.
23 Try to think of every aspect of the property that is good, inviting, attractive, functional,
24 beneficial, valuable, and so on, and state it in a strong, direct, and concise way in the MLS
25 remarks. Use creative and descriptive words. Aspects to promote are location, view,
26 neighborhood/building, kitchen, baths, master suite, and terrace - just to name a few.
27 Send the information on your new listings to the MLS as soon as possible, so that other
28 brokers will have the information quickly. Once the listing is uploaded to the MLS, print a
29 copy and send it to your seller as part of your weekly activity report.
30
31 Your Website
32
33 Place your new listing on yours or your company’s website as soon as possible after
34 obtaining the listing. As with the MLS, as soon as you upload the property information, print
35 a copy and send it to the seller with the weekly activity report.
36
37 Home Tours
38
39 Home tours, also known as caravans, are very beneficial to familiarize brokers with the
40 new listings. They are usually set up as morning tours on a weekly basis. There are two
41 types of home tours:
42
43 • Office tours. The brokers and associates from your firm tour the property. It’s useful
44 to have the licensees fill out a property evaluation form after they do their
45 walkthrough. These evaluations give you helpful information to share with your
46 sellers – both the positive aspects and those things the other licensees see as areas
47 that need improvement.
48
49 • MLS tours. Many listing services set up tours for brokers by area, since there are
50 usually too many listings for any broker to see in a morning’s time. If your listing is on
51 an MLS tour, have property evaluations available for the brokers to fill out.

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1 Showings
2
3 Sellers are most familiar with the showing aspect of marketing their property, so be sure
4 to inform them of how things could go.
5
6 Examples:
7
8 Even though in most cases a seller will have ample warning when a showing is
9 scheduled, they should be prepared for that unexpected, last minute call. Sometimes
10 agents are actually out showing property to buyers when they realize that a certain home
11 has the features the buyers are looking for. They might then call the listing agent to see
12 if they can schedule a last minute showing.
13 Another illustration is the case of buyers out riding around and seeing a home that
14 piques their interest. The buyers will call the agent while sitting out in front of the home
15 and ask if they can see it. It’s not ideal, but it does happen and sales have resulted from
16 such situations.
17 If someone knocks on the door and wants to see the property, tell your seller to get
18 the person’s name and then call your office immediately so a broker can meet the
19 potential buyer at your home to conduct the showing.
20
21 On the other hand, sellers need to understand that there will be situations in which you
22 or another broker will have to cancel a scheduled showing. You must promise your seller
23 that you will make every effort to give them warning when a showing has been canceled.
24 However, circumstances do exist when an agent will not show for a scheduled appointment
25 and the listing agent will not know until the seller calls to report it. Reassure your clients that
26 if this happens, you will do whatever you can to find out why and let them know.
27 Whether the situation involves a last minute showing or a canceled appointment, it’s
28 important for your seller to realize that flexibility will help keep such situations from
29 becoming unduly stressful.
30
31 Open Houses
32
33 • Broker open house. A broker open house is an
34 open house for licensees only. This type of open
35 house is useful because it gives you the
36 opportunity to get feedback regarding your listing
37 from licensees, as well as get the property in front
38 of more of them. It’s especially valuable for
39 properties that are unusual. Licensees typically like
40 to attend these events. It gives them a chance to spend more focused time at a
41 property that could very well meet the needs of one of their buyers.
42 Holding a drawing or raffle for a prize, such as a set of free car washes or a gift
43 certificate to a popular restaurant, is an incentive that the hosting broker can use to
44 attract more licensees to the open house.
45 A raffle is easy to conduct. Have the licensees drop their business cards into a
46 bowl or basket. At the end of the open house, draw the winning card.
47 Now that you have the business cards from everyone who attended, you can
48 contact the licensees to get their feedback, or to see if they have any interested
49 buyers.
50
51 • Public open house. A public open house is the most familiar form of open house to
52 licensees, buyers, and sellers. Here are some tips to help you to have a successful
53 open house:

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1 o With any open house or home tour, encourage the seller to have their home in
2 the best possible condition – clean and uncluttered.
3 o Have each visitor sign in and let you know why they came. You can design your
4 sign-in sheet to ask if the visitor is represented by a broker, so that you can find
5 out if this person might be a potential client for you.
6 o Be sure to give each visitor a copy of the property flyer and your business card.
7 You should also have flyers available for other comparable homes in this area in
8 lower price ranges.
9 o Communicate any comments you receive from attendees to your seller in your
10 weekly activity report.
11 o Another idea is to have a summary sheet prepared by a loan originator to
12 demonstrate financing options for the house. The document could have columns
13 showing the differences for conventional loans at 5%, 10%, 20%, and an FHA
14 loan. After all, buyers are interested in three things when looking to purchase a
15 home:
16
17 1. How much is the monthly payment?
18
19 2. Do we make enough income to afford a house in this price range? (Do we
20 qualify?)
21
22 3. How much cash do we need to qualify for financing?
23
24 A loan comparison chart, like the one shown below, may provide answers.
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51

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 Working with Sellers 109

CHAPTER 4 REVIEW QUESTIONS

1. The three keys to prospecting success are of contacts, of

contacts, and for tracking contacts.
2. It is important to maintain a contact containing all your prospect contact
information. Using is key to managing and accessing this
information.
3. A is a specific geographic location,
subdivision, or area in which you choose to concentrate your real estate activities.
4. marketing is the traditional form of marketing that includes newspaper,
radio, or television ads as well as flyers and mailers. marketing includes
any form of social media where relationships are developed that attract the client to you.
5. advertising is any type of ad that is put in front of consumers where
the results cannot be measured, such as billboard ads. advertising
is any type of ad where the results can be measured, such as pay-per-click online ads.
6. The cover of the listing presentation manual should display a picture of the seller’s
, with the seller’s and , and your information.
7. The listing presentation should include an up-to-date personal profile. The profile should
include your , , , and community involvement.
8. It is important to qualify the seller by asking questions to help you understand their
for selling and regarding timing, asking price, moving plans, and
financing.
9. A is an employment agreement between you and a
property owner. It may not contain an clause.
10. An listing is a contract where the owner agrees to pay a
commission to any broker who provides a ready, willing, and able buyer under price and
terms agreeable to the owner.
11. An listing is a type of listing where the owner can list the property with
only one broker. But, the owner can sell the property on their own without owing the
broker a commission.
12. A broker is best protected by an listing, where the owner can
list with only one broker and must pay the broker commission regardless of who sells the
property.
13. A listing sets a minimum amount that the seller wants to receive from the sale,
exclusive of the broker’s commission.
14. In servicing the listing, the number one complaint clients have about their real estate
professional is lack of . To avoid this problem, always prepare them for
events and keep them informed of the status of the sale and any items that may require
their attention.
15. A time-tested method for writing good advertising is referred to as the standard,
which says that if you want your ads to get good results, they must capture the reader’s
, arouse in your product, create a for
the product, and prompt the reader to .

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CHAPTER 4 PRACTICE EXAM

1. Which of the items listed below is 5. If you have a potential buyer for a
NOT a necessary item to bring to a FSBO property, what type of
listing presentation? document might you use to negotiate
a. Listing presentation manual a showing?
b. Seller’s property disclosure a. Open contract
statement b. Closed contract
c. Purchase and Sale contract c. Optional contract
d. Listing agreements with seller’s d. One-time showing contract
information, except for asking price
6. In which section of your listing
2. Which service would NOT be presentation do you have the specific
appropriate to list in your marketing information about how you are going
plan as one of the services you to market a client’s property?
provide to the seller? a. Mission statement
a. Help you determine the best asking b. Personal resume
price. c. Listing agreement
b. Present and discuss each offer with d. Marketing plan
you.
c. Guarantee to find a buyer who will 7. Which type of listing allows an owner
pay your asking price or higher. to list his or her property with only
d. Contact you regularly to keep you one broker?
fully informed. a. Exclusive listing
b. Open listing
3. Which home preparation tip would c. Closed listing
NOT be recommended? d. Single listing
a. Keep family photographs and
personal items in view to give the 8. Under what listing agreement is the
home a welcome appearance broker assured compensation
b. Clean or paint the front door and regardless of who sells the property?
polish door hardware a. Open listing
c. Organize and clean out closets to b. Exclusive right of sale listing
make them look larger c. Fixed listing
d. Clean and freshen up the bathrooms, d. Exclusive listing
including removing any mold or
mildew from the tub or shower area 9. Which action would NOT be
recommended for a successful listing
4. Which of the following is an example presentation?
of a call-to-action statement? a. Be on time
a. We provide the best service in town. b. Build rapport with the seller through
b. Call now. some casual conversation
c. We have a number of new listings in c. Ask relevant questions to gather
the Broward County area. information about the seller’s needs
d. All of our agents receive special d. Dress very casually to encourage the
residential listing training. seller to feel comfortable with you

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10. What is the best strategy to take 13. A seller’s cancellation fee is found in
when there has been no activity on which section of the Exclusive Right
the listing in the past week? of Sale listing contract?
a. Avoid contacting the client. a. Fee termination
b. Contact the client and misrepresent b. Penalty fee
the truth. c. Conditional termination
c. Contact the client and discuss the d. Expense termination
status.
d. Do nothing; wait and send a monthly 14. Which of the following is NOT a
report that shows more activity. suggested property-staging tip?
a. Play quiet background music.
11. Why is an Exclusive Right of Sale b. Turn the room temperature 72˚F.
listing advantageous to a broker? c. Open the drapes and turn on all the
a. The broker can charge a higher rate lights.
of commission. d. Turn on the TV.
b. The broker can place the listing in
the MLS. 15. Which information is NOT included in
c. The broker’s compensation is best an Exclusive Right of Sale listing
protected. agreement?
d. A seller can use multiple brokers. a. Authority to Sell Property, including
beginning and end dates of the
12. Which question would NOT be agreement
suggested when qualifying the seller? b. Price and Terms, including the
a. Is there any particular type of buyer minimum price the seller is willing to
would you like me to locate? accept
b. Why and where are you moving? c. Brokerage Relationship, including a
c. What improvements have you made disclosure your agency relationship
to your home? to both buyers and sellers
d. What timeframe do you have in mind d. Broker Obligations and Authority,
for selling your home and moving to including seller’s agreement to list
a new home? the property on the internet or use a
lock box

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Florida Real Estate Sales Associate Post-License Course Reicon Publishing, LLC
CHAPTER

FINANCING PROGRAMS
OVERVIEW To help buyers choose the best available method of financing,
today’s real estate professional needs to have a thorough
understanding of the financing process and options. The size of a
loan that a buyer can obtain certainly depends on that buyer’s
personal financial circumstances. It also depends on the features
and structure of the loan. These are the important questions to ask.
How long is the repayment period? How much of a down payment
will the lender want? Does the loan carry a fixed or adjustable
interest rate?
The types of loans that lenders make at any point in time vary in
order to accommodate the changing conditions in the mortgage
finance market. Lenders are interested in giving loans to qualified
buyers, but they must structure those loans to control the risk of a
buyer’s default and to protect their own investments.
As a real estate professional, you can help your buyers obtain
the needed financing by keeping up with the kinds of loans that are
currently available in your market. Oftentimes, lenders will send out
information about their latest loan programs. In addition, you can
stay up-to-date by doing frequent internet searches for the newest
developments.

OBJECTIVES After completing this chapter, you should be able to do all of the
following:

• Identify types of lenders in the primary mortgage market

• Explain the function of the primary and secondary mortgage
markets
• Identify key lenders in the secondary mortgage market
• Describe the basic features of a mortgage loan
• Explain the key differences between conventional, FHA, and
VA loans
• Describe amortization of loan payments in conventional loans
• Identify conventional loan options
• Describe the ratios used by lenders to qualify borrowers
• Identify buyer protections put in place by the Truth in Lending
Act
• Describe the loan application process

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 114 Chapter 5

1 LENDERS IN THE MORTGAGE MARKET

2
3 By definition, an institutional lender is any financial institution whose loans and lending
4 practices are regulated by law. These institutions pool the funds of their depositors and
5 invest the funds in real estate loans, making them financial intermediaries. Institutional
6 lenders include commercial banks, savings associations, life insurance companies, and
7 pension funds.
8 A noninstitutional lender is an entity whose real estate loans are not so strictly regulated
9 by state or federal government agencies. A large variety of noninstitutional lenders exists in
10 the real estate marketplace. This is not surprising, given the fact that noninstitutional lenders
11 are relatively free of regulations. Examples of noninstitutional lenders include private parties,
12 syndications, private loan companies, and endowment funds.
13
14 Institutional vs. Noninstitutional Lenders
15
16 Institutional and noninstitutional lenders are different in the following significant ways.
17
18 • Degree of regulation. Institutional lenders are highly regulated by state and federal
19 agencies; noninstitutional lenders have few, if any, regulations.
20
21 • Direct investment vs. intermediary. As stated above, institutional lenders are
22 financial intermediaries; noninstitutional lenders invest their funds directly rather than
23 through an intermediary.
24
25 • Impact of usury laws. Institutional lenders are not subject to usury laws, which are
26 laws that protect consumers by limiting the rate of interest that may be charged.
27 Therefore, institutional lenders may charge any rate of interest. Noninstitutional
28 lenders make loans that may be subject to usury laws, thereby limiting the rate of
29 interest that may be charged.
30
31 • Ability to make certain government loans. Many institutional lenders may make
32 VA and FHA loans, while most noninstitutional lenders may not. Government loan
33 programs are discussed later in this chapter.
34
35 • Availability of secondary mortgage market. Institutional lenders have the
36 secondary mortgage market available to them, while noninstitutional lenders do not.
37 The secondary mortgage market is a large and liquid market where loan-servicing
38 rights are bought, assembled into one or more packages, and sold to investors.
39
40 • Ability to provide rate “lock-in” period. Many institutional lenders can offer their
41 borrowers a “lock-in” period on their rates, meaning that they guarantee a particular
42 rate for a two- to eight-week period prior to closing. Noninstitutional lenders typically
43 do not offer this option.
44
45 THE PRIMARY MORTGAGE MARKET
46
47 The primary mortgage market is where borrowers and mortgage originators come
48 together to negotiate terms and effect mortgage transactions. Loan origination is the
49 process by which a borrower applies for a new loan and a lender processes that application.
50 Origination generally includes all of the steps from the point of taking a loan application up to
51 disbursal of funds or the declining of the application. Mortgage loan originators, mortgage
52 bankers, credit unions, and banks are all part of the primary mortgage market.

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1 The primary mortgage market consists of individuals and businesses that want or need
2 to borrow money and the various sources for those loans. The sources may be individuals,
3 institutional lenders, and other organizations formed to loan money as agents or
4 intermediaries for insurance companies or pension funds. Mortgage loan originators,
5 mortgage bankers, credit unions, and banks are all part of the primary mortgage market.
6 The primary mortgage market includes the following sources for loans.
7
8 • Commercial banks. A commercial bank is a
9 financial institution designed to act as a depository
10 for funds and as a lender for commercial activities.
11 Commercial banks primarily do short term loans,
12 mostly to businesses to finance their operations.
13 Commercial banks are stock companies, owned by
14 their stockholders.
15 Most of the funds deposited in commercial banks are in demand accounts
16 (personal and business checking accounts). Since this money is cash, a depositor
17 can withdraw it at any time. As a result, the bank rarely uses these highly fluid funds
18 for mortgage lending.
19 On the other hand, the depositors’ savings accounts, referred to as time
20 deposits, provide access to less liquid funds. These deposits, along with loans from
21 other banks and bank owners’ equity, give the bank the access to long-term funds
22 that it needs for its investment ventures, including real estate loans.
23 Commercial banks operate under a state or federal charter. The Florida Office of
24 Financial Regulation licenses state-chartered commercial banks, while the Office of
25 the Comptroller of the Currency (OCC) gives licenses to nationally chartered
26 commercial banks. All Florida banks are required to have Federal Deposit Insurance
27 Corporation (FDIC) insurance.
28 Although commercial banks make some long-term real estate loans, the largest
29 impact of commercial banks in the real estate market is that they make short-term
30 construction loans. These construction loans include short-term loans that last
31 from three to twelve months, home improvement loans that extend up to five years,
32 and manufactured housing loans that typically run 10 years, or sometimes longer,
33 depending on how permanently the home is attached to the property.
34 Commercial banks also make other real estate loans, typically for single-family
35 residences. They can make home loans of up to 95% of the home’s value for as long
36 as a 30-year term. However, banks will usually require private mortgage insurance
37 (PMI) on any loan of more than 80% of the home’s value. PMI protects the lender in
38 case the borrower defaults on the loan. Refer to the PMI section in this chapter for
39 further details.
40
41 • Savings associations. Savings associations, also known as savings banks or
42 thrifts, were originally organized to assist members with the financing of residential
43 property. Previously referred to as savings and loan associations, they were
44 designed to serve only their own members. The association members would pool
45 their money and take turns using the money to fund construction of member’s
46 homes. After all the members built homes, the association was dissolved.
47 Savings and loan associations dominated the residential mortgage market until
48 deregulation of the banking industry in the 1980s. In the past, these institutions made
49 most of their mortgage loans with depositors’ funds. The loans were held full term,
50 with the savings association receiving the principal and interest payments from the
51 borrower.
52 After deregulation in the 1980s, many savings and loan associations faced
53 severe problems because of bad loans, poor decisions about the economy,
54 fraudulent activities, and numerous other factors. The Financial Institutions Reform,
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1 Recovery, and Enforcement Act of 1989 (FIRREA) was passed by Congress to

2 reorganize financial institutions in an effort to prevent a repeat of this crisis. The
3 Resolution Trust Corporation (RTC) was formed to manage insolvent thrift
4 institutions and sell their assets. After completing the task of selling the assets of
5 failed savings and loan associations, the RTC was closed in December of 1996.
6 Today, a savings association can be organized either as a stock organization
7 owned by stockholders or as a mutual association owned by the depositors. Savings
8 associations provide both savings accounts (time deposits) and negotiable order of
9 withdrawal (NOW) accounts (demand accounts) which are the equivalent of a
10 checking account.
11 Savings associations are required to hold a minimum percentage of assets as
12 mortgage-related loans to maintain a status that will allow them to borrow from the
13 Federal Home Loan Bank System. These institutions extend business and consumer
14 loans, but in far smaller numbers than their real estate loans. Savings institutions can
15 make collateral loans that are secured by borrowers’ savings accounts, savings
16 certificates, bonds, other existing secured notes, or other forms of readily liquid
17 assets. Savings associations often offer their depositors a higher rate of interest on
18 their deposits than commercial banks.
19 Savings associations are chartered either by the federal government or by the
20 states in which they operate.
21 The Office of the Comptroller of the Currency (OCC) regulates federal savings
22 associations and establishes loan limits and reserve requirements. Federal savings
23 associations are members of the Savings Association Insurance Fund (SAIF) that
24 insures depositors’ accounts for up to $250,000. The SAIF is a division of the
25 Federal Deposit Insurance Corporation (FDIC). The savings association must include
26 the designation “Federal” or “FA” in their name.
27 State-chartered savings associations can choose to be regulated by the OCC
28 and have their deposits insured by the SAIF, or to be regulated by the states in which
29 they are located. If they choose federal regulation, they must abide by the same
30 rules as federally chartered organizations.
31
32 • Life insurance companies. Life insurance companies hold a major portion of the
33 savings of the American public. Only savings associations control more savings than
34 life insurance companies do. Life insurance companies are the largest source of
35 funds for financing both apartment projects and commercial properties. They are a
36 major source of credit for shopping centers, office buildings, hotels and motels,
37 industrial buildings, and large apartment complexes. They typically invest up to a
38 third of their assets in real estate loans.
39 Life insurance companies are organized in one of two ways:
40
41 o Mutual companies owned by the policyholders who share in the earnings
42 through premium rebates
43
44 o Stock companies owned by stockholders who receive dividends on the
45 earnings
46
47 In either form of organization, the insurance companies are licensed by the state
48 where they have their home office or in which they are incorporated. In Florida,
49 insurance companies are regulated by the Florida Office of Insurance Regulation.
50 Insurance companies are very concerned with the safety and stability of an
51 investment over the long term. This is the reason that they typically prefer to finance
52 larger real estate projects. However, more recently, they have become active in the
53 financing of single-family residences with the assistance of mortgage bankers and
54 brokers.
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1 • Private parties (individuals). Private parties have no formal structure. They are
2 noninstitutional lenders and have very few laws or regulations to deal with
3 concerning their lending practices. Since there is not much structure, the practices
4 and policies of private parties vary greatly from one lender to another. However,
5 many states have passed usury laws that regulate the maximum amount of interest
6 an entity can charge on various loans.
7 Florida enacted a liberal system when it comes to usurious lending practices. It
8 ranks as one of the most liberal laws in the country when it comes to what lenders
9 can charge in the way of interest on personal loans. The State of Florida established
10 a two-tier system when it comes to usury limitations on loans. Lenders may not
11 charge an interest rate of more than 18% on loans up to $500,000. On loan amounts
12 above $500,000, the interest rate must not exceed 25% annually. Charging an
13 interest rate that exceeds the maximum amount is illegal and is referred to as
14 usurious. To charge or receive interest at a rate of 25% to 45% per annum is a
15 misdemeanor of the second degree, which could result in imprisonment for up to 60
16 days. Charging or receiving interest at a rate above 45% per annum is defined as
17 loan sharking and is a third degree felony, which could result in imprisonment of up
18 to five years. [F.S. 687.02]
19 In some cases where a lender has been found guilty of usury, the borrower did
20 not have to pay any interest on the loan.
21
22 • Real estate investment trusts. The real estate investment trust (REIT) was formed
23 in 1960 by federal tax law. The goal was to influence small investors to combine their
24 resources with others to raise venture capital for real estate transactions.
25 REITs are formed by private investment groups to purchase real estate for
26 investment, and to make short-term construction loans and long-term mortgage
27 loans. A REIT is a business trust that operates similarly to a mutual stock fund in that
28 individual investors make investments in the trust, thereby creating a pool of money
29 that can be used to purchase, construct, or fund its real estate ventures. Its
30 investments and loans are primarily in apartment complexes and commercial
31 properties. If qualified, a REIT receives special tax treatment under federal income
32 tax laws.
33 REITs can be categorized according to the purpose of the formation. Those that
34 are formed to buy, own, and manage investment properties are called equity trusts.
35 Others that are formed for the purpose of lending money to fund the construction
36 and/or purchase of commercial or apartment projects are called mortgage trusts.
37 Trusts that engage in both lending and ownership activities are called mixed trusts.
38 REITs enjoy special income tax benefits similar to those granted to mutual funds.
39 They are exempt from corporate tax if they invest at least 75% of their assets in real
40 estate and distribute 95% or more of their annual real estate income to their
41 investors. Because the tax incentives are so favorable, real estate investment trusts
42 draw literally thousands of investors.
43 REITs concentrate on income-producing properties and generally diversify their
44 holdings with regard to both property type and geographical location. REITs prefer to
45 target their lending activities towards land development projects and permanent
46 financing for condominiums, high rises, warehouses, office complexes, single-family
47 subdivisions, and other major projects. Today, REITs play a major role in the
48 development, financing, and ownership of large apartment complexes and
49 commercial properties.
50
51 • Syndications. A syndicate is a group of two or more people who unite their
52 resources for the purpose of making and operating an investment. Members of the
53 syndication can pool their capital to finance a real estate transaction or to purchase a
54 piece of property.
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1 Syndication is not a form of legal ownership; rather, it is a term that is used to

2 describe multiple ownership of an investment. Syndicates may operate in the form of
3 a real estate investment trust, corporation, general partnership, limited partnership,
4 or tenancy in common.
5 • Private loan companies. Private loan companies are prevalent in this country.
6 Some are very large national firms with branches in hundreds of cities across the
7 country. Others are much smaller, individual operations. In either case, these lenders
8 deal mostly in junior financing; that is, second deeds of trust that allow borrowers to
9 pull out some of the equity in their property to use for other purchases.
10 Some of these private loan companies deal exclusively in real estate financing.
11 They can make loans from their own or borrowed funds, they can act as brokers
12 between borrowers and lenders, and they can buy and sell junior financing
13 instruments.
14 Private loan companies typically charge more in interest than other lenders. They
15 also tend to charge higher loan placement fees. These practices help the loan
16 companies offset the risks that come with dealing in junior loans.
17
18 • Pension funds. Pension funds collect contributions from
19 workers and sometimes employers and then invest those funds
20 to create a large money pool from which the workers may
21 withdraw when they reach retirement. Traditionally, pension
22 funds have been invested in stocks and bonds and this
23 continues to be the case for the most part. More recently though,
24 since mortgage-backed securities have become available,
25 pension funds have begun to play a role in the real estate market
26 by purchasing existing real estate loans in the secondary market.
27 In addition, some funds are now developing their own programs that allow the fund
28 contributors to use pension funds to purchase homes.
29
30 • Endowment funds. An endowment, in the
31 financial world, is a transfer of money or
32 property, which is donated to an institution,
33 with the stipulation that it be invested,
34 keeping the principal intact. This allows the
35 donation itself to have a much greater impact over a long period than if it were spent
36 all at once, due to compound interest. Since these endowment funds are permanent,
37 fund managers want to choose investments that are safe and will generate relatively
38 high levels of income for long periods. For this reason, endowment funds offer a
39 good source of mortgage financing for commercial and industrial properties. Many
40 commercial banks and mortgage companies handle investments for endowment
41 funds.
42
43 • Credit unions. Credit unions are nonprofit financial institutions into which members
44 place their money, usually through direct deposit. Credit unions pay no income tax,
45 so they can pay higher interest rates on deposits than other savings institutions.
46 They also offer a wide variety of loans at far lower interest rates than their
47 competitors do. This makes credit union membership very attractive.
48 Credit unions make mostly short-term loans. When they do make real estate
49 loans, they tend to be second mortgages or home improvement loans. Under the
50 Federal Credit Union Act, credit unions have the authority to make 30-year loans to
51 their members to finance a principal residence. They can also make FHA or VA
52 loans at interest rates comparable to market value.

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1 • Mortgage loan originators. Mortgage loan originators do not make loans. They
2 arrange loans by taking mortgage applications and searching for lenders who offer
3 the lowest interest rates and easiest borrower qualification. Mortgage loan originators
4 charge borrowers an application fee and often earn a finder’s fee or commission for
5 arranging loans. A mortgage loan originator’s license must be obtained from the
6 Florida Department of Financial Services (DFS) to engage in this business in this
7 state.
8 In addition, after the loan is placed, mortgage loan originators do not service the
9 loan. Loan payments are made directly to the lender, although in some cases they
10 could be made to a collection service. In order to establish and maintain a good
11 reputation, mortgage loan originators must take some responsibility for qualifying the
12 borrowers and examining the reliability of the investment. They know that they must
13 recommend reliable borrowers to the lenders and quality loans to the borrowers.
14 Mortgage loan originators must have good access to the major financial institutions
15 that make real estate loans.
16
17 • Mortgage bankers. Mortgage bankers are financial
18 intermediaries who arrange for the flow of money from
19 investors to borrowers. However, mortgage bankers do
20 not have depositors.
21 A mortgage banker is a company, individual, or
22 institution that originates mortgages. After a mortgage is
23 originated, a mortgage banker might keep the mortgage in their portfolio or sell the
24 mortgage to an investor.
25 Mortgage bankers may borrow money from a commercial bank by using
26 mortgages it owns as collateral, using the funds to make additional loans, and then
27 selling the loans to another investor. The proceeds of that sale are used to repay the
28 bank loan, which is a process called warehousing.
29 Mortgage banks often act as loan correspondents for insurance companies or
30 investment funds. The insurance company or pension fund supplies the money to be
31 loaned; the mortgage banker originates individual loans to local borrowers by using
32 the money supplied by the insurance company or other investor.
33 After making the loans, the mortgage banker usually continues to service the
34 loans. Servicing a loan means collecting the payments, escrowing the taxes and
35 insurance, keeping the loan records, and forwarding the net proceeds to the investor
36 who supplied the funds in the first place. They charge a fee for servicing the loan and
37 earn additional profit by charging loan origination fees, points, and other fees related
38 to the origination of the loan.
39 Mortgage bankers are the largest originators of FHA and VA loans but make
40 conventional and commercial loans as well.
41
42 SELLING AND PACKAGING OF LOANS
43
44 Mortgage funds can be sold or packaged in a variety of ways.
45
46 • Lenders can sell loans to one another.
47
48 Example:
49
50 A Florida savings and loan association has a higher demand for loans than it
51 can meet. A savings and loan association in South Dakota has a surplus of
52 deposits and a low loan demand. If the Florida savings bank sells loans to the

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1 South Dakota savings bank, the Florida bank receives the money it needs to
2 make new loans while the South Dakota bank can invest its surplus funds.
3
4 • One institution can sell a part interest in a block of loans to another institution.
5 This is called mortgage participation.
6
7 Example:
8
9 Florida has $5,000,000 in loans to sell to South Dakota. Instead of selling the
10 entire block, Florida sells 90% interest ($4,500,000) and retains the other 10%. In
11 this situation, Florida still services the loans and then passes 90% of the
12 mortgage payments to the South Dakota bank.
13
14 • Grouping loans into mortgage-backed securities (MBS).
15
16 A more common way of selling and packaging funds is mortgage-backed securities
17 (MBS), which are backed by a pool of mortgages. Governmental, quasi-
18 governmental, or private entities purchase mortgage loans from banks, mortgage
19 companies, and other originators and then assemble them into pools. The entity then
20 issues securities that represent claims on the principal and interest payments made
21 by borrowers on the loans in the pool.
22
23 THE SECONDARY MORTGAGE MARKET
24
25 A major problem that faces a lender in the primary market is a constant flow of funds in
26 order to continue to provide mortgage loans. A lender can exhaust its ability to make loans if
27 the demand for mortgage money exceeds the amount of deposits received. Primary lenders
28 sell their notes to generate more money to make more loans.
29 A secondary mortgage market was developed to provide a constant source of funds with
30 which to make real estate loans. This market consists of secondary market lenders who
31 purchase mortgages that originated in the primary mortgage market. Mortgages originated
32 by primary lenders are bundled or packaged and sold to another lender in what is termed a
33 secondary market transaction.
34 As a result, the secondary mortgage market provides liquidity to the primary market and
35 solves the problem of the primary lender running out of funds. When the loan is sold, the
36 amount that was originally loaned is replaced, thereby allowing the same money to be
37 loaned again. The primary lender makes a profit by retaining the loan origination fees and
38 the points charged to the borrower. It usually continues to service the loan after it has been
39 sold.
40 The secondary mortgage market consists of holding warehouse agencies that purchase
41 a number of mortgage loans and assemble them into one or more packages of loans for
42 resale to investors. Investors can purchase fractional interests in these loan packages or
43 mortgage pools through the services of local stockbrokers. Discounts are used frequently in
44 the secondary market. Entities that buy and sell mortgages negotiate based on yields.
45 Discounts are used to adjust yields, so the buyers and sellers of the mortgage notes can
46 reach agreement and make the sales.
47 You might wonder why lenders don’t just keep the loans they make instead of selling
48 them on the secondary market. That approach could work if every lender had a balance
49 between the demands it has for loans and the supply of money to which it has access. That
50 is rarely the case. Therefore, loans are sold on the secondary market in an effort to shift
51 money from areas that have a surplus to those areas that have a shortage.
52 Investors in the secondary market make a relatively low-risk investment since the
53 primary lender has already qualified the borrowers and the properties. Each lender is

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1 requested to provide an estoppel letter thereby confirming the balance of each loan before
2 the loan is sold in the secondary market. Federal lending law requires that each borrower be
3 notified whenever a loan is being sold to another lender. The terms of the original loan are
4 unaffected by the sale.
5 The federal government has been instrumental in the organization of the secondary
6 mortgage market. The principal secondary lenders are governmental or quasi-governmental
7 agencies and include Ginnie Mae, Fannie Mae, and Freddie Mac.
8 These agencies, collectively known as government-sponsored enterprises (GSE),
9 purchase loans or guarantee mortgage-backed securities issued by lenders.
10 In September 2008, the Federal Housing Finance Agency (FHFA) placed Fannie Mae
11 and Freddie Mac into conservatorship. This action was essentially a takeover by the
12 government to ensure the financial soundness of these two companies due to the events
13 that took place during the subprime mortgage crises.
14
15 Ginnie Mae (Government National Mortgage Association or GNMA)
16
17 Ginnie Mae was originally created as a government-owned
18 corporation operating within the U.S. Department of Housing and Urban
19 Development (HUD). When it was established in 1968, its basic mission
20 was to create and operate a mortgage-backed security program for the
21 FHA and VA mortgages. Ginnie Mae developed the first mortgage-
22 backed security in 1970. This security was backed by a pool of FHA and
23 VA mortgages. It was called a pass-through security because the monthly
24 principal and interest payments were collected from the borrowers and then passed through
25 to the investors.
26 Ginnie Mae took over the special assistance housing programs authorized by Congress
27 and acts to make low-yield, high-risk loans marketable. Ginnie Mae is primarily engaged in
28 purchasing federally subsidized residential mortgages which are originated by local lenders.
29 It assists in the financing of urban renewal and housing projects by offering below-market
30 interest rates to low-income families. It also guarantees payment of securities backed by
31 residential mortgages.
32
33 Fannie Mae (Federal National Mortgage Association or FNMA)
34
35 The Federal National Mortgage Association (FNMA),
36 nicknamed Fannie Mae, was originally created in 1938
37 as a government-owned corporation for purchasing FHA
38 loans.
39 FHA, which was created in 1934, helped to revive the construction industry and improve
40 employment. The demand for FHA loans depleted the deposits available in many smaller
41 banks and the lending process could not continue, thus defeating the very purpose of the
42 program. Fannie Mae was given the authority to purchase these loans so that the program
43 could remain viable.
44 In 1944, with the inception of the VA loan program, Fannie Mae was authorized to
45 purchase these loans in addition to FHA loans. Fannie Mae continued to be a government-
46 owned and -operated corporation.
47 Under the 1968 Charter Act, Fannie Mae became a for-profit private stockholder-owned
48 corporation operating with private capital on a self-sustaining basis. As a separate, privately
49 owned corporation, Fannie Mae became subject to federal corporate income tax, but it was
50 exempt from state income taxes. The 1968 Act also provided for continuing HUD oversight
51 of Fannie Mae to ensure Fannie Mae's adherence to its public purpose.
52 In 1970, Fannie Mae’s authority was expanded to include the purchase of conventional
53 loans. Today, Fannie Mae uses private capital raised by selling mortgages from its portfolio,
54 and mortgage-backed securities to purchase all types of mortgages, FHA, VA, and
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1 conventional. Fannie Mae is the oldest and largest participant in the secondary mortgage
2 market.
3 Fannie Mae and FHLMC (Freddie Mac, which is discussed in the next paragraph) have
4 encouraged the standardization of lending practices throughout the United States. All loans
5 that are sold to either Fannie Mae or Freddie Mac must be underwritten using criteria and
6 standards established by these organizations. Loans which are underwritten in accordance
7 with their requirements are called conforming loans, and the lenders that originate them are
8 referred to as conforming lenders. Loans that do not conform to their standards for
9 underwriting cannot be sold in the secondary market and must be held by the primary lender
10 as a portfolio loan.
11 Fannie Mae and Freddie Mac have recently developed a new system for underwriting
12 that is designed to speed up the loan approval process, called desktop underwriting. A local
13 lender that subscribes to this system can input a loan application by computer directly to the
14 secondary market. If the application meets secondary requirements, Fannie Mae or Freddie
15 Mac can grant approval immediately so the loan can be funded almost instantly. Even the
16 appraisal process is being by-passed in select cases. Centralized data banks have been
17 created for high-density metropolitan areas that allow a statistical analysis of a property to
18 be performed without the delay inherent in waiting for an appraisal to be completed. The
19 statistical analysis is backed up by a ratio analysis of tax roll data. The physical appearance
20 and conformity of the property is verified by a drive-by which is performed either by an
21 employee of the lender or by an appraiser who performs a simplified appraisal.
22 Fannie Mae is a shareholder-owned company that works to make sure mortgage money
23 is available for people across the country. Fannie Mae does not lend money directly to
24 homebuyers. They work with lenders to make sure the lenders don't run out of mortgage
25 funds. Fannie Mae stock is actively traded on the New York Stock Exchange and other
26 exchanges. It is also part of the Standard & Poor's 500 Composite Stock Price Index.
27 Fannie Mae operates under a congressional charter, which directs it to channel its
28 efforts into increasing the availability and affordability of homeownership for low-, moderate-,
29 and middle-income Americans.
30 Fannie Mae receives no government funding or backing. When Fannie Mae purchases
31 mortgages, it executes a servicing agreement that allows the loan originator to be the
32 collection agent and receive a fee. The loan originator can receive a potentially substantial
33 income from these fees, which range from 1/4 to 3/8 of 1% of the loan amount. Therefore,
34 the greater the size of the loan portfolio, the greater the income the loan originator receives.
35 When Fannie Mae sells mortgages, it does so in open-market transactions. Purchasers
36 must pay current prices for the securities in these transactions. Sales of Fannie Mae
37 mortgages usually peak when there are limited opportunities for other investments.
38
39 Freddie Mac (Federal Home Loan Mortgage Corporation or FHLMC)
40
41 Since Ginnie Mae and Fannie Mae were created to deal
42 primarily with the purchase of FHA and VA loans, there was a need
43 to develop a mortgage-backed security for conventional loans. In
44 1970, Congress created the Federal Home Loan Mortgage
45 Corporation (FHLMC), known as Freddie Mac, which introduced the
46 first security backed by conventional loans.
47 Freddie Mac is a stockholder-owned, for-profit corporation, which operates as a function
48 of the HUD. Freddie Mac is authorized to purchase all types of loans. Although authorized to
49 purchase FHA and VA loans, Freddie Mac’s activity is primarily in the field of conventional
50 loans. Freddie Mac sells mortgage-backed securities and mortgage loans to investors.
51 Freddie Mac's mission is to provide stability, affordability, and opportunity to the housing
52 market. Freddie Mac is dedicated to putting homeownership within reach for minority
53 populations. In addition, Freddie Mac strives to make rental housing more affordable
54 through its mortgage programs for multifamily housing.
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1 LOAN FEATURES
2
3 The basic features of a mortgage loan include loan fees, loan-to-value ratio (LTV),
4 repayment period, amortization, and repayment plan.
5
6 Loan Fees
7
8 In some ways, we can think of a mortgage loan as a partnership between the lender
9 and the borrower. The advantage to the borrower lies in obtaining the funds to complete the
10 home purchase. The lender’s advantage comes from obtaining income in the form of the
11 interest and finance charges on the loan, thus making the loan an investment for the lender.
12 In order to increase the investment, lenders often charge other fees when the borrower gets
13 the loan. The borrower could pay all or some of these charges.
14
15 • Loan origination fee. The loan origination fee is typically 1% of the loan amount,
16 although it could be higher. It covers the lender’s cost for generating the loan.
17
18 • Points or discount points. Points (or discount points) represent prepaid interest.
19 The borrower pays discount points up front to receive a lower interest rate over the
20 life of the loan. The lender charges points to get additional income on the loan.
21 Points are paid at closing. Each point paid is 1% of the loan amount.
22
23 Example:
24
25 2 points on a $150,000 loan is equal to $3,000.
26
27 ($150,000 x .01 x 2 points = $3,000)
28
29 Points are a means of raising the effective interest rate of the loan. This rate actually
30 received is called the effective yield. This in turn facilitates the lender’s ability to sell the
31 loan to the secondary mortgage market at competitive rates. The rule of thumb for
32 calculating effective yield is 1/8% (0.125) for each discount point. Therefore, a charge of 3
33 points increases a 6 ¼% mortgage to a 6 5/8% yield.
34
35 Example:
36
37 3 points x 0.125 = 0.375
38
39 6 ¼% (6.25) + 0.375 = 6.625 (6 5/8%)
40
41 Loan-to-Value Ratios (LTV)
42
43 A loan-to-value ratio, also referred to as LTV, is the ratio of the
44 mortgage principal to the value of the property the borrowers are
45 purchasing.
46
47 Example:
48
49 A buyer purchases a home for $240,000, makes a $48,000
50 down payment, and borrows $192,000. The loan-to-value ratio is 80%. The buyer makes
51 a 20% down payment and borrows 80% of the home’s value.
52 If the same buyer makes a $24,000 down payment on the same loan, the LTV is
53 90%, since they make a 10% down payment and borrow 90% of the home’s value.

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1 Therefore, a higher LTV means the borrower receives a larger loan amount and
2 makes a smaller down payment.
3
4 Most lenders feel that if the borrowers have a greater amount invested in the property
5 (meaning, the down payment); the less likely they will be to default on the loan and lose the
6 property. In addition, if the borrowers do default, the loan balance will be smaller, so the
7 lender will have a better chance of recovering the loan balance in the foreclosure sale.
8 Lenders use LTV ratios to determine the maximum amount of their loans. In some loan
9 programs, the lender might set the maximum loan amount at 90%, thereby requiring the
10 borrower to make a down payment of 10%, while other programs might allow a maximum of
11 95%, meaning the borrower would only have to come up with 5% for the down payment.
12
13 Repayment Period
14
15 The repayment period is the number of years in which a borrower has to repay the loan.
16 It’s also called the loan term. Most residential loans have a term of 30 years, although 15-
17 year and 20-year terms have become more common.
18 The number of years for repayment has two very important impacts on the loan.
19
20 • It affects the monthly payment amount. The longer the repayment period the lower
21 the monthly payment will be.
22
23 Example:
24
25 The monthly payment on a $150,000 loan for 30 years at 6% is $899.33. The
26 monthly payment on that same amount for 15 years is $1,265.79.
27
28 • It affects the total amount of interest that will be paid over the life of the loan. The
29 shorter the repayment period, the less the total interest the borrower will pay over the
30 life of the loan.
31
32 Example:
33
34 The total amount of interest paid on our $150,000 30-year loan from the example
35 above is $173,757.28. For a loan term of 15 years, the total interest is $77,841.34.
36
37 Amortization
38
39 Amortization refers to how the principal and interest are paid over the life of the
40 repayment period. Most loans made by banks and savings and loans are fully amortized.
41 With a fully amortized loan, the borrower has the same payment amount every month. The
42 payment goes first to the interest and then to the principal. Over the life of the loan, the
43 amount that goes toward interest decreases, while the amount that goes to principal
44 increases.
45 In the early years of the loan, the principal payment is very small, so it takes several
46 years for the borrower to increase their equity in the property. However, closer to the end of
47 the repayment period, the borrower’s equity increases much more quickly.
48
49 Example:
50
51 The monthly payment on a $150,000 30-year loan at 6% is $899.33. When making
52 the first payment, only $149.33 of the payment goes to principal; the remainder goes to
53 interest. However, by year 21 of the repayment period, $524.79 of the payment goes to
54 principal.
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1 Loan Repayment Plans

2
3 When obtaining a loan, a critical decision for both the borrower and the lender is to
4 determine a payment plan that will suit the borrower’s financial circumstances while
5 remaining a good investment for the lender.
6 There are many types of repayment plans, including the following:
7
8 • Fully amortized, fixed-rate loan. Most loan payments include a portion that applies
9 to the interest owed and a portion that goes toward repaying the loan, called
10 principal. The word amortize comes from the Latin word amorte, which means to kill.
11 The amortization, then, is the principal portion of the payment used to repay the loan.
12 Most conventional, FHA and VA loans are amortized loans.
13 Most amortized loans are fully amortizing, which means the payment is sufficient
14 to repay the interest owed and the loan in full over the life of the loan.
15 If the monthly mortgage payment remains the same over the term of the loan, the
16 loan is a fixed rate or level payment loan. In each succeeding monthly payment, the
17 amount applied to pay interest on the loan is reduced and the amount applied to
18 repay the loan principal is increased. The principal amount originally borrowed will be
19 completely repaid at the end of the loan term.
20 The monthly payment for an amortized loan consists of the following:
21
22 Interest portion + Principal portion = Monthly mortgage payment
23
24 A 15-year fixed rate mortgage allows a borrower to save a substantial amount of
25 interest compared to a 30-year or other longer-term loan. However, the monthly
26 payments are obviously higher for a 15-year mortgage loan than those for a 30-year
27 loan are. Lenders will usually make a 15-year loan at an interest rate slightly lower
28 than a long-term loan due to the reduced risk.
29
30 • Partially amortized loan with a balloon payment. Some amortizing
31 loans are partially amortizing, which means the payment is not
32 sufficient to pay all of the interest due and repay the loan in full.
33 The balance of the original loan that remains unpaid at the end of a
34 partially amortizing loan term is called a balloon payment. This means
35 that the monthly payments are not large enough to fully amortize the loan
36 by the end of the term, thereby leaving the large balloon payment due.
37
38 Example:
39
40 A loan for $125,000 at 5% can be computed on a 30-year amortization
41 schedule but be paid over a term of 20 years. That means the payment amount
42 will be figured as if the loan were a 30-year loan, but the loan will mature, and the
43 final balloon payment will be due at the end of the 20th year. In this example, the
44 monthly payment (principal plus interest) is $671.03. At the end of year 20, the
45 balloon payment due is $63,527.64 (the amount of principal still left on the loan).
46
47 Other amortizing loans may be structured so that a balloon payment is due after
48 a certain number of years, such as five or seven years. This would allow the
49 payment to remain the same as a fully amortizing loan, but the borrower would have
50 to be in a position to pay the balloon amount when it becomes due.

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1 • Interest-only loan. An interest-only loan is a type of mortgage loan in which the

2 borrower is only required to pay off the interest that arises from the principal that is
3 borrowed. Monthly payments are allocated to interest only. No principal is paid off.
4 At the end of the term, the borrower must be able to pay off the entire principal
5 amount (referred to as a balloon payment) or get another loan. Since the payments
6 are applied to the interest only, they remain constant and are typically lower than
7 with other loan types.
8 An interest-only loan could be a wise choice for someone who plans to own the
9 property for a short time and believes the property will appreciate during that time.
10 Conversely, it could be very risky. If the property does not appreciate, the borrower
11 could end up with less in proceeds on the sale than what is needed to pay off the
12 loan. This loan is perfect for an investor who is trying to increase the cash flow. This
13 kind of investor cares more about time appreciation and yearly income from the
14 investment rather than paying off their loan. The equity dividend rate on this kind of
15 mortgage may increase exponentially. It is a great way to use positive leverage.
16 Interest-only loans can be useful for first-time homebuyers because it allows
17 young people to defer large payments until their incomes grow.
18
19 • Adjustable rate mortgage (ARM). An adjustable rate mortgage is an amortized loan
20 in which the interest rate fluctuates over the term of the loan. Payment adjustments
21 are made at set intervals. The lender’s risk associated with making fixed-rate loans is
22 reduced by using an adjustable rate mortgage. Since interest rates can rise, the
23 lender may receive additional income on the loan as the market changes.
24 Important elements of an ARM loan include an index and a margin. The margin
25 added to the index determines the note rate, which is the rate the borrower will pay
26 on the loan. This rate can change for future loans based on changes in the index.
27
28 o Index. The index is a foundation rate for the loan that must be published and
29 is beyond the control of the lender. Two index rates often used by lenders are
30 the weekly average yield on U.S. Treasury Securities called the one-year T-
31 bill rate, and the eleventh district cost of funds. Of the two, the eleventh
32 district cost of funds tends to be less volatile, thereby resulting in less
33 dramatic changes in the borrower’s payment.
34
35 o Margin. A margin is a percentage that is added to the index rate by the
36 lender to cover the lender’s overhead and provide a profit on the loan. The
37 margin does not change for the life of the loan.
38
39 The date when interest rates can change in an ARM is called the rate adjustment
40 date. The amount of time between rate adjustment dates is called the rate
41 adjustment period. An ARM with a rate adjustment period every 12 months is called
42 a one-year ARM, every 36 months is a three-year ARM, and every 60 months is a
43 five-year ARM.
44 The change date for the borrower’s monthly mortgage payment must be
45 disclosed to the borrower in advance. Typically, the payment adjustment is made on
46 the same date as the interest rate.
47 If the ARM payment does not change on the same date as the interest rate,
48 negative amortization may occur. This is due to the fact that the monthly payment
49 may be lower than the payment required for principal plus the amount of interest due.
50 If the interest rate is adjusted monthly, but the payment is only changed once each
51 year, negative amortization can occur. When negative amortization occurs, the
52 unpaid interest is added to the loan balance and no reduction in the principal occurs.

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1 Most ARM loans have both a payment cap and a lifetime cap. Caps create an
2 upper and a lower limit on the adjustments that can be made to the loan. Payment
3 caps set the limit for any single adjustment to the payment. Lifetime caps set the
4 upper and lower interest rate that can be charged over the life of the loan. For
5 example, caps of 2 and 6% on a one-year ARM limit the increase or decrease in the
6 payment to 2% per year and to 6% over the life of the loan. Adjustments may be
7 made up or down, depending on the change in the underlying index.
8
9 • Graduated payment loan. In a graduated payment mortgage, the borrower makes
10 low initial monthly payments that are insufficient to fully amortize the debt at the end
11 of the mortgage loan term. The monthly payments are periodically increased during
12 the first three to five years of the loan. Following the last increase, the payment will
13 be higher than the payment necessary to amortize the original loan had it been
14 scheduled as a fixed payment mortgage.
15 During the period that the payments are insufficient to amortize the loan, the
16 principal balance actually increases as the result of negative amortization. The
17 interest not paid in the initial payments is added to the principal balance of the loan.
18 The borrower owes more money after the graduated period than the original principal
19 balance borrowed.
20
21 TYPES OF MORTGAGES
22
23 Although there are a number of different methods for repaying a loan, there are only
24 three types of mortgages: conventional, FHA insured, VA guaranteed. The sections that
25 follow provide detailed information about each of these mortgage types.
26
27 CONVENTIONAL LOANS
28
29 A conventional mortgage loan is any loan that is not insured or
30 guaranteed by an agency of the government. Conventional
31 mortgage loans made by lending institutions, and private lenders
32 are the predominate method in which single-family residences are
33 financed.
34 Usually, conventional mortgage loans are more difficult for a
35 borrower to obtain than a mortgage under the FHA or VA programs. Conventional mortgage
36 loans typically require a higher down payment than those required by FHA or VA, and
37 traditionally carry a higher interest rate. Since these loans are neither insured nor
38 guaranteed, they carry a higher risk in foreclosure than the FHA and VA loans.
39 A fixed-rate 30-year mortgage is a common conventional loan. The payment is stable
40 and there is always the opportunity to pay the balance down or to refinance for a better rate
41 later. Recently, 15-year mortgages have become popular as borrowers realize that the
42 interest savings is significant over the 30-year loan.
43
44 Private Mortgage Insurance (PMI)
45
46 To offset the higher risk, and to allow conventional lenders to compete with FHA and VA
47 loans, private mortgage insurance was developed. Private mortgage insurance (PMI) was
48 introduced by the Mortgage Guarantee Insurance Corporation (MGIC) in 1957 and is
49 currently available from several competing firms. Federal lending regulators usually require
50 PMI when the loan amount exceeds 80% of the property value. Some lenders qualify for
51 self-insurance, and in that event, do not require PMI. However, they may charge the
52 borrower a fee for this protection. With PMI, a conventional borrower may obtain a loan for
53 up to 95% of the property value.

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1 The federal Homeowners Protection Act of 1998 (HPA) requires automatic cancellation
2 of PMI by the lender when the LTV ratio is 78% or less of the property’s original value.
3 Previously, this was optional on the part of the lender.
4 The HPA also provides the borrower with the right to request cancellation of PMI when a
5 mortgage has been paid down to 80% of its original appraised value or purchase price,
6 whichever is less. The borrower also has the right to accelerate the cancellation date by
7 making additional payments that bring the LTV ratio to 80%.
8 PMI increases the cost of financing, as the borrower is required to pay a premium for the
9 coverage. Although the monthly payment is higher, interest is charged only on the unpaid
10 balance of the loan.
11
12 Obtaining a Conventional Loan
13
14 Conventional loans tend to be more difficult to obtain than an FHA or VA loan.
15 Conventional lenders have increased their requirements for qualifying in recent years due to
16 the high default rate in the mortgage market. Some lenders require a down payment of 20%
17 and a credit score of 720 or above. In addition, the qualifying ratios are far more stringent
18 than government-backed loans.
19
20 Conventional Qualifying Ratios (Debt Ratios)
21
22 • Housing expense ratio (front-end). The housing expense ratio (front-end) is the
23 combined principal, interest, taxes, and insurance payment (commonly referred to as
24 PITI) divided by the borrower’s gross monthly income. The conventional guideline is that
25 the housing expense (front-end) ratio should not be greater than 28%.
26
27 Example:
28
29 If the borrowers PITI payment is $1,500 per month and their gross monthly
30 income is $9,000, the housing expense ratio is 17%.
31
32 $1,500 divided by $9,000 = 0.166 (17%)
33
34 • Total obligations ratio (back-end). The total obligations ratio (back-end) is the housing
35 PITI payment and the borrower’s other monthly obligations divided by the borrower’s
36 gross monthly income. The conventional guideline is that the total obligations ratio
37 (back-end) should not be greater than 36%.
38
39 Example:
40
41 The borrower’s PITI payment of $1,500 plus a $1,200 car payment and an $800
42 credit card payment equal $3,500 total monthly obligations. This $3,500 divided by
43 the gross monthly income of $9,000 rounds up to 39%.
44
45 $1,500 + $1,200 + $800 = $3,500 divided by $9,000 = 0.388 (39%)
46
47 The borrower in our example does not qualify for a conventional loan since the back-
48 end ratio is over 36%. However, they do qualify for an FHA loan, which you’ll see when
49 you read about FHA qualifying ratios.

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1 Amortizing Loan Payments

2
3 If the monthly payment for a fixed, or level, payment mortgage is known, it is possible to
4 calculate the amount of the payment that is applied to pay interest and the amount that is
5 applied to principal. The balance of the loan that remains unpaid after the principal reduction
6 can then be determined.
7 The formula for calculating the interest portion of the loan payment is:
8
9 I = PxRxT
10
11 The letters in the formula represent values as follows:
12
13 I = Interest portion amount of the monthly payment ($)
14 P = Principal amount of the loan (loan balance)
15 R = Rate of annual interest charged on the loan (%)
16 T = Time expressed in fractions of a year (i.e., one month is 1/12)
17
18 Example:
19
20 A mortgage of $100,000 for 30 years at 4% has a fixed monthly payment of $477.42.
21 What is the balance of the loan after four monthly payments?
22
23 Solution:
24
25 Step 1 Calculate the interest amount paid. Use the formula to find the interest
26 portion of the first monthly payment by replacing the appropriate letters in the
27 formula with the known values and performing the arithmetic. Multiplying by
28 1/12 is the same as dividing by 12.
29
30 I=PxRxT
31 I = $100,000 x .04 x 1/12
32 I = $100,000 x .04 ÷ 12 = $333.33 Interest for the first month
33
34
35 Step 2 Determine the principal amount paid. Subtract the first month’s interest
36 from the monthly payment to determine the amount of principal applied
37 towards “paying down” the outstanding loan amount in the first month.
38
39 $477.42 Monthly mortgage payment
40 - 333.33 Interest portion of first monthly payment
41 $144.09 Principal portion of first monthly payment
42
43
44 Step 3 Determine the reduced loan balance. Subtract the first month’s principal
45 payment from the principal amount originally borrowed to find the reduced
46 balance of the loan after the first month’s payment.
47
48 $100,000.00 Original loan amount (principal)
49 - 144.09 Principal portion of first monthly payment
50 $ 99,855.91 Remaining loan balance (principal) after the first payment

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1 Step 4 Repeat steps 1 through 3 for additional months. Repeat steps 1 through 4
2 listed above for each additional month. Use the same values for rate of
3 interest (“R”) and time (“T”) as for the first month. However, since the
4 remaining loan balance (principal) is reduced by each monthly payment, you
5 must use the remaining principal balance of the loan calculated in step 3 as
6 the new principal amount (“P”). The following table shows the results.
7
8 1st Month 2nd Month 3rd Month 4th Month
9 Balance $100,000.00 $99,855.91 $99,711.34 $99,566.29
10
11 Payment $477.42 $477.42 $477.42 $477.42
12 Interest Portion $333.33 $332.85 $332.37 $331.89
13
Principal Portion $144.09 $144.57 $145.05 $145.53
14
15 Balance (New) $99,855.91 $99,711.34 $99,566.29 $99,420.76
16
17 The example above illustrates the following characteristics of an amortized loan with a
18 fixed monthly payment:
19
20 • The interest portion paid each month is less than the amount paid in the previous
21 month. This is due to the slight reduction in principal balance each month; as the
22 principal is reduced each month, the interest payment is reduced.
23
24 • The principal portion paid each month is more than the amount paid in the previous
25 month. Since there is a fixed monthly payment, as the interest payment portion
26 decreases, a larger portion of the monthly payment remains each month to pay down
27 the loan balance.
28
29 • The principal balance of the loan decreases each month, thereby resulting in a zero
30 balance at the end of the loan term.
31
32 Tools are readily available for use in calculating monthly payments, interest, and
33 principal amounts for amortized loans. You can use a real estate calculator or one of the
34 many free online amortization schedule calculators to determine the monthly payments and
35 totals for any given principal amount, interest rate, and loan period.
36 The following is an example of an amortization table that provides a comparison of the
37 impact of interest rate and loan term on the monthly payments and totals for an initial loan
38 principal amount of $100,000.
39
Example Amortization: $100,000 Initial Loan Principal
40
15-Year Term (180 payments) 30-Year Term (360 payments)
41 Interest
Monthly Monthly
42 Rate %
Payment
Total Interest Paid Total Amount Paid
Payment
Total Interest Paid Total Amount Paid
43 3.0% $690.58 $24,304.70 $124,304.70 $421.60 $51,777.45 $151,777.45
44 3.5% $714.88 $28,678.86 $128,678.86 $449.04 $61,656.09 $161,656.09
45 4.0% $739.69 $33,143.83 $133,143.83 $477.42 $71,869.51 $171,869.51
46 4.5% $764.99 $37,698.79 $137,698.79 $506.69 $82,406.71 $182,406.71
47 5.0% $790.79 $42,342.85 $142,342.85 $536.82 $93,255.78 $193,255.78
48 5.5% $817.08 $47,075.02 $147,075.02 $567.79 $104,404.04 $204,404.04
49 6.0% $843.86 $51,894.23 $151,894.23 $599.55 $115.838.19 $215.838.19
50 6.5% $871.11 $56,799.33 $156,799.33 $632.07 $127,544.49 $227,544.49
51 7.0% $898.83 $61,789.09 $161,789.09 $665.30 $139,508.90 $239.508.90
52 7.5% $927.01 $66,862.22 $166,862.22 $733.76 $164,155.25 $264,155.25
53 8.0% $955.65 $72,017.38 $172,017.38 $768.91 $176,808.85 $276,808.85

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1 Loan Options
2
3 For a buyer who may not be able to qualify for a standard fixed-rate mortgage, other
4 options can put a conventional loan within their reach.
5
6 • Biweekly mortgage. A biweekly mortgage requires that one-half of the mortgage
7 payment be paid every two weeks instead of one payment per month. This is
8 different from a bimonthly payment. Bimonthly payments result in 24 payments per
9 year, whereas biweekly payments result in 26 payments per year. Therefore, a
10 biweekly mortgage is essentially the same as making 13 monthly payments each
11 year. This reduces the time necessary to amortize the loan. By making payments
12 every two weeks, a loan that would take 30 years to amortize in today’s market will
13 be paid off in approximately 25 years, thereby saving a substantial amount of
14 interest.
15
16 Example:
17
18 A 30-year mortgage for $100,000 at a rate of 4% means the homeowner will
19 pay approximately $71,870 in interest throughout the life of the loan. Paying one-
20 half of the regular monthly mortgage bi-weekly (26 payments per year) reduces
21 the total interest to approximately $60,593, which is a savings of $11,277. The
22 time to pay off the loan is reduced by 49 months, from 30 years to just under 25
23 years.
24
25 The disadvantage of this type of loan is that the payments are usually required to
26 be automatically withdrawn from the borrower’s checking account. Closer attention to
27 the account balance is necessary to avoid charges for insufficient funds. Virtually the
28 same interest savings can be achieved by making one additional monthly mortgage
29 payment each year.
30
31 • Graduated payment mortgage. With a graduated payment mortgage (GPM), the
32 monthly payment for principal and interest gradually increases by a certain
33 percentage each year for a certain number of years and then levels off for the
34 remaining term of the mortgage. This type of plan might be especially attractive to a
35 borrower who is just starting a career and expects that their income will increase
36 over time. This plan allows a borrower to start out with a lower monthly payment than
37 with a traditional fixed-payment plan. The borrower can qualify for the loan based on
38 expected salary increases along with the expectation that the value of the home will
39 also increase over time.
40 With a GPM, the borrower may have initial payments that are less than the
41 interest-only portion of the loan at that point. The interest owed and not paid in the
42 initial months is added back to the principal thereby causing what is referred to as a
43 negative amortization.
44
45 • Pledged account mortgage. A pledged account mortgage (PAM) is a type of
46 graduated payment mortgage under which a borrower contributes a sum of money
47 into an account that is pledged to the lender. The account is drawn on during the first
48 three to five years of the loan to supplement the periodic mortgage payments,
49 thereby reducing the borrower’s monthly payments in the initial years. Once the
50 account is empty, the borrower makes the full mortgage payment.

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1 Example:
2
3 Jim gets a PAM for a $90,000 home. He makes a down payment of $10,000,
4 which the lender puts in a pledged account. Jim makes the payments based on a
5 mortgage principal of $90,000, but his actual payments are reduced in the first
6 three to five years by drawing a subsidy from the $10,000 pledged account.
7
8 • Buydown. A buydown is a variation of the PAM described above. In a buydown, the
9 lump sum payment that is made to the lender at closing usually comes from a builder
10 as an incentive to the buyer or from a family member who is trying to help. That
11 payment serves to reduce the interest rate on the loan for the first few years. At the
12 end of that time, the rate rises. The lender assumes the borrower’s income will also
13 have risen during these years and they will be able to make the increased payments.
14
15 • Open-end loan. An open-end loan is an expandable loan that gives a borrower a
16 limit up to which they may borrow. Each incremental advance must be secured by
17 the same mortgage and any advances may not exceed the original borrowing limit.
18 The interest rate on the original amount borrowed is fixed. However, the interest rate
19 on any future advances can be at the prevailing rate at the time of the advance.
20 An open-end loan is usually less expensive than the conventional home
21 improvement loan. It allows the borrower to expand the mortgage to increase the
22 debt to the original amount. Farmers use this type of loan to meet their seasonal
23 operating expenses. After they harvest their crops, they pay off the advance.
24
25 • Blanket loan. A blanket mortgage loan covers more than one piece of property.
26 Land developers commonly use blanket mortgages when they buy a plot of land and
27 divide it into many separate lots. A blanket loan usually includes a clause called a
28 partial release clause. This clause allows the borrower to obtain a release of any
29 individual lot from the lien by repaying a certain part of the loan. The lender issues
30 the partial release for the one lot, with the provision that the mortgage will continue to
31 cover the remaining lots.
32
33 • Wraparound loan. A wraparound mortgage allows a borrower who has an existing
34 loan to get another loan from a second lender without paying off the first loan. The
35 second lender issues a new larger loan to the borrower at a higher interest rate. The
36 new loan is a combination of the first loan and the second loan. The borrower makes
37 the new higher payments to the second lender and then the second lender pays the
38 first lender out of those funds.
39 A wraparound loan is often used in a refinancing situation or for the purchase of
40 a home when a borrower cannot prepay the existing mortgage.
41 Note: A wraparound mortgage is only possible if the original loan documents
42 allow it.
43
44 • Bridge loan. A bridge loan is a short-term loan that covers the period between the
45 end of one loan and the beginning of another. Bridge loans are typically used in two
46 situations.
47
48 o To cover the period between the end of a construction loan and the issue of a
49 permanent loan on a property.
50
51 o When a person needs to borrow money on his or her unsold home (a second
52 mortgage of sorts) to fund the acquisition of a new home. This is useful when a
53 seller will not accept a property sale contingency.

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1 • Purchase money mortgage. A purchase money mortgage (PMM) is most

2 commonly a technique in which the buyer borrows from the seller in addition to the
3 lender. The purchase money mortgage is created at the time of the purchase and
4 delivered at the time the property is transferred as part of the sale transaction. This is
5 sometimes done when a buyer cannot qualify for a bank loan for the full amount, so
6 the seller takes back a portion of the purchase price as a second mortgage.
7
8 • Land contract. A land contract, also called an installment land sales contract or a
9 contract for deed, is when the buyer does not receive legal title until the final
10 payment is made. The seller keeps legal title until the debt is paid in full. The buyer
11 receives equitable title until the debt is fully paid. This type of loan is covered in more
12 detail in the section on seller financing.
13
14 • Construction loan. Lenders give construction mortgages to finance the construction
15 of improvements to property, such as homes, apartments, and office buildings. The
16 lender commits to the full amount of the loan, but disburses payments over the life of
17 the construction project. The payments are made to the general contractor or the
18 owner for the parts of the construction that have been completed since the date of
19 the last payment. However, before making a payment, the lender will inspect the
20 completed work and ask the contractor to submit proof that the subcontractor has
21 waived the lien rights for the work that the payment is covering.
22 Interest rates on construction loans are usually higher than on other loans
23 because the risk is greater. The borrower pays interest on only the money that has
24 been actually disbursed up to the payment date. These loans are short-term. The
25 borrower can get a permanent loan, usually called a takeout loan, which pays off or
26 takes out the lender of the construction loan, when the construction is complete.
27 Alternatively, a borrower may be able to convert the construction loan to a
28 permanent fixed mortgage if the lender offers that option.
29
30 • Home equity loan. Owners have the ability to borrow against the equity they have
31 built up in their home. Homeowners can use a home equity loan for things, such as
32 to purchase high dollar items, take a vacation, consolidate other loans or credit card
33 debt, pay medical expenses, pay college tuition, or make home improvements. A
34 home equity loan is an alternative to refinancing. It can be a fixed amount or a line of
35 credit that the homeowner borrows against as needed.
36
37 • Package mortgage. A package mortgage is one that includes all the personal
38 property and appliances that are installed on the property. This type of loan has been
39 used extensively in the sale of furnished condominiums. The loan will include
40 furniture, draperies, carpeting, kitchen appliances, washer and dryer, freezers, and
41 other items as part of the purchase price for the residence.
42
43 • Reverse annuity mortgage (RAM). A reverse annuity mortgage (RAM) is quite
44 different from the others. With a reverse annuity mortgage, the lender makes
45 payments to the borrower. This system allows older property owners to receive
46 regular monthly payments from the equity in their paid-off property without having to
47 sell the property. The borrower pays a fixed rate of interest and then repays the loan
48 either when the home sells or from the borrower’s estate upon his or her death.
49
50 • Sale and leaseback. The sale and leaseback arrangement is typically used by
51 commercial enterprises to free up money that is tied up in the real estate to use as
52 working capital in the business. The owner of the real estate sells the property and
53 then leases it back from the buyer. The buyer becomes the owner, and the former

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1 owner becomes the tenant. These arrangements are very complicated and should be
2 undertaken only with proper and adequate legal and tax advice.
3
4 GOVERNMENT LOANS
5
6 Even though conventional loans are the most common type of loans available, and
7 most homes are financed through uninsured or insured conventional loans, the government
8 stills play a role in providing loans for property purchases. Government-backed loans
9 include loans that are offered by the following:
10
11 • The Federal Housing Administration (FHA)
12 • The Department of Veterans Affairs (DVA) (simply referred to as VA)
13 • Rural Housing Service (RHS)
14
15 FHA LOANS
16
17 The Federal Housing Administration (FHA) was established
18 in 1934 during the Great Depression to stimulate the housing
19 market in the United States. The FHA provides low-down-
20 payment loans to qualified buyers. The Department of Housing
21 and Urban Development (HUD) oversees the FHA. The loans that the FHA provides are
22 high LTV loans, so FHA insures the loans in order to make them available to higher risk
23 individuals.
24 FHA does not build homes or loan money directly. They insure loans made by approved
25 lending institutions, including qualified mortgage companies, savings and loan associations,
26 and commercial banks. FHA-insured loans protect lenders against any loss they might suffer
27 from a borrower’s default.
28
29 FHA Loan Facts
30
31 There are a number of important facts to know about FHA loans, including:
32
33 • Type and term of the loan. FHA loans can be either fixed-rate 10-, 15-, 20-, 25-, to
34 30-year loans or a 30-year fixed-period adjustable-interest rate loan.
35
36 • Down payments. Down payments are low. FHA requires eligible borrowers to have
37 a FICO credit score of at least 580 and to provide a down payment of at least 3.5%
38 of the home’s purchase price or appraised value, whichever is less. Borrowers who
39 have a credit score between 500 and 579 are required to provide a 10% down
40 payment. Borrowers who have a FICO score below 500 are not eligible for FHA
41 insured financing.
42 The down payment can be from the borrower’s own funds, from a non-repayable
43 gift, or a combination of the two. The borrower is required to document any gift funds
44 in a gift letter.
45
46 • Standard loan-to-value percentages. The standard maximum loan-to-value (LTV)
47 ratio for an FHA insured mortgage loan is 96.5% when the borrower makes a 3.5%
48 down payment.
49 Closing costs associated with FHA insured mortgage loans may be rolled into the
50 loan balance, as long as the loan-to-value maximum guidelines are still met. The
51 loan plus closing costs must not exceed 96.5% of the home’s assessed value or the
52 selling price, whichever is less.

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1 • Calculating the maximum loan amount. The maximum loan amount can be
2 determined by multiplying the lesser of the purchase price or appraised value by the
3 maximum LTV ratio. When closing costs are financed, these costs must be added to
4 the purchase price.
5 FHA insured mortgage loans are underwritten in $50 increments. If a mortgage
6 calculation results in an odd amount, the loan amount will be rounded down to the
7 next lower increment.
8
9 • Loan fees. The maximum loan fee is 1% of the loan amount and may be paid by the
10 either the buyer or the seller.
11
12 • FHA mortgage insurance premiums (MIP). An FHA mortgage insurance premium
13 (MIP) is required for all FHA insured mortgage loans, regardless of the down
14 payment. This is not the same as private mortgage insurance (PMI) charged for
15 conventional loans.
16 The amount of mortgage insurance premiums required on an FHA insured
17 mortgage loan includes the payment of both an up-front mortgage insurance
18 premium (UFMIP) and an annual mortgage insurance premium (AMIP).
19
20 o UFMIP. The up-front mortgage insurance premium (UFMIP) is paid at the time of
21 closing of the loan, even though all or a portion of the mortgage insurance
22 premium may be financed. The UFMIP is 1.75% of the mortgage amount in most
23 cases. If paid in cash at closing, the UFMIP can be paid by the borrower, seller,
24 or a third party.
25
26 o AMIP. Annual mortgage insurance premiums must also be paid as a percentage
27 of the annual outstanding loan balance divided up into 12 monthly payments. The
28 AMIP rates vary based on the loan-to-value, mortgage term, and loan amount. If
29 at the point of origination, the LTV is 90% or less the AMIP will not be required
30 after 11 years. If the LTV is greater than 90%, which is typical with 96.5% loans,
31 AMIP must be paid for the life of the loan.
32
33 • Default by the borrower. FHA insured mortgage loans insure the lender 100%. In
34 the event of default of the mortgage loan, the lender is reimbursed for losses
35 including foreclosure costs by HUD/FHA.
36
37 • Interest rate. The interest rate of an FHA insured mortgage loan is determined by
38 negotiation between the lender and the borrower. Interest rates are established by
39 supply and demand in the marketplace.
40
41 • Escrow account. FHA requires that the monthly amounts the borrower pays toward
42 taxes, insurance, and MIP be deposited into an escrow or impound account.
43
44 • Assumption. Loans are assumable, but the rules for assumptions vary depending
45 upon when the loan originated, the type of property, and the specific FHA program
46 under which the original loan was given. When an FHA insured mortgage loan is
47 assumed, only the lender, not FHA, can release the original borrower from financial
48 liability.
49
50 • Appraisal. The mortgaged real estate must be appraised by an approved FHA
51 appraiser. These appraisals are called conditional commitments and are good for six
52 months on existing property and one year on new construction.

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1 • Purchase price. There is no maximum on what the purchase price of the property
2 can be. The borrower can pay more than the appraisal; but the loan is based on the
3 appraisal amount.
4
5 • Standards for property type and construction. The property must meet the FHA
6 standards for type and construction. FHA also has standards about the quality of the
7 neighborhood. These loans are available for one-to-four family residences and some
8 condominium units.
9
10 • Owner-occupied. The borrower must occupy the property.
11
12 • Pest inspection. FHA requires evidence from a recognized structural pest
13 inspection company that an existing property has no pest infestation.
14
15 • Repair or rehabilitation of property. FHA loans are also available to help residents
16 or investors repair or rehabilitate single-family properties.
17
18 • Prepayment. There are no prepayment penalties on FHA loans on one-to-four-
19 family residences. However, the borrower must give a 30-day written notice to pay a
20 loan in full before it is due.
21
22 • Due-on-sale. There is no due-on-sale clause. Original terms of the loan stay the
23 same and cannot change because of a sale.
24
25 FHA Loan Programs
26
27 The most common loan programs are:
28
29 • FHA Section 203(b) Mortgage Insurance. This program provides basic mortgage
30 insurance for the purchase or refinance of owner-occupied one-to-four family home.
31
32 • FHA Section 203(k) Rehabilitation Mortgage Insurance. This FHA insured
33 mortgage loan program enables homebuyers to finance both the purchase of a one-
34 to four-family dwelling and the cost of its rehabilitation through a single long-term
35 fixed or adjustable rate mortgage. This program can also be used by homeowners to
36 refinance an existing one- to four-family dwelling along with the cost of rehabilitation.
37 However, cooperative units are not eligible for this program.
38
39 • FHA Section 234(c) Condominiums. This program insures a loan for 30 years
40 specifically for the purchase of a single-unit condominium, and is similar to that for
41 single-family detached homes.
42
43 • FHA Section 251 Adjustable Rate Mortgages (ARM). This program provides
44 mortgage insurance on adjustable interest rate financing that is based on FHA/HUD
45 approved market indexes. One-, three-, and five-year adjustable-rate mortgage
46 (ARM) loans are available with interest rates that cannot change by more than 1%
47 per year after the fixed-rate period, with a maximum rate increase over the life of the
48 loan of no more than 5%. Seven- and ten-year loans are available as well. The rates
49 for these loans cannot change more than 2% per year or more than 6% over the life
50 of the loan.

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1 FHA Qualifying Ratios (Debt Ratios)

2
3 An FHA lender looks at not only the borrower’s income but also their minimum monthly
4 debts. The lender uses the monthly debts to calculate the debt ratios and then uses those
5 ratios to determine the loan amount for which the borrower qualifies.
6
7 • Housing expense ratio (front-end). As previously discussed under Conventional
8 Qualifying Ratios, this is the combined principle, interest, taxes, and insurance
9 payment (PITI) divided by the borrower’s gross monthly income. The FHA guideline
10 is that the housing expense ratio (front-end) should not be greater than 31%.
11
12 Example:
13
14 If the borrowers PITI payment is $1,400 per month and their gross monthly
15 income is $7,000, the housing expense ratio is 20%.
16
17 $1,400 divided by $7,000 = 0.2 (20%)
18
19 • Total obligations ratio (back-end). As previously discussed under Conventional
20 Qualifying Ratios, this is the housing PITI payment and the borrower’s other monthly
21 obligations divided by the borrower’s gross monthly income. The FHA guideline is
22 that the back end should not be greater than 43%.
23
24 Example:
25
26 The borrower’s PITI payment of $1,400 plus a $600 car payment and a $400
27 credit card payment equals $2,400 total monthly obligations. This $2,400 divided
28 by the gross monthly income of $7,000 equals 34%.
29
30 $1,400 + $600 + $400 = $2,400 divided by $7,000 = 0.34 (34%)
31
32 The minimum required monthly payments of the following are included in the
33 back-end ratios.
34
35 o Auto loans. Except if there are less than nine months left to pay off.
36 o Student loans. Except if there are less than nine months left to pay off.
37 o Personal loans. Except if there are less than nine months left to pay off.
38 o Charge cards. Minimum required payments only.
39 o Child support. Except if there are less than nine months left to pay off.
40 o Alimony. Except if there are less than nine months left to pay off.
41 o Federal tax lien repayment schedules. If less than nine months not
42 calculated.
43
44 Some monthly liabilities that the FHA does not consider when
45 calculating debt ratios include:
46
47 o Cell phone bills
48 o Utility bills
49 o Health and car insurance
50 o Any bills that do not show on the borrower’s credit report

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1 FHA Qualifying Documents

2
3 When a borrower applies for an FHA loan, they are asked to provide information or
4 documentation as listed below:
5
6 • Social Security number • All open loans
7 • Home address • Personal property value
8 • Employers for the past two years • Any real estate owned
9 • Gross monthly income • Check stubs and W-2 forms
10 • Bank account statements • Tax returns (at least two years)
11
12 FHA Loan Limits
13
14 FHA sets maximum loan limits based on the county in which the property is located. As
15 of the last published limits, maximum loan amounts in Florida range from $271,050 (for
16 lower cost areas such as Ocala and Okeechobee) to $729,750 (for high-cost areas such as
17 Key West).
18 The limits for single-family homes in some of the Florida counties are shown below.
19
20 Florida County FHA Loan Limit*
21 Broward $423,750
22 Miami-Dade $423,750
23 Palm Beach $423,750
24 Martin $375,000
25 Monroe $729,750
26 * Subject to change.
27
28
29 For a complete list of FHA loan limits for all Florida counties,
30 please visit the FHA Web site at
31 www.fha.com.
32
33 VA LOANS
34
35 The VA mortgage loan program was created in 1944 to assist military veterans with
36 financing the purchase of reasonably priced homes. The VA mortgage loan program
37 requires little or no down payment, and provides veterans with relatively easy qualification
38 requirements and comparatively low rates of interest.
39 The VA mortgage loan program guarantees permanent long-term mortgage loans that
40 are originated by VA approved lenders for owner-occupied residences, including
41 condominiums and mobile homes which meet VA standards. If mortgage money is not
42 available, the VA will loan money directly to a veteran. If default occurs and a loss results
43 from foreclosure, the borrower is responsible for the loss.
44
45 • Funding fee. Generally, all veterans who use the VA home loan benefit must pay a
46 funding fee. This fee reduces the loan’s cost to taxpayers considering that a VA loan
47 typically requires no down payment and has no monthly mortgage insurance. The
48 funding fee is a percentage of the loan amount, which varies based on the type of
49 loan and the veteran’s military category. The funding fee must be paid at closing and
50 may be financed as long as it does not increase the loan amount beyond the
51 maximum allowed.

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1 • Eligibility. A veteran’s eligibility for the mortgage loan program is shown on a

2 certificate of eligibility that is obtained from the VA. This certificate indicates the
3 amount of guarantee for which the veteran is eligible. The VA entitlement can be
4 used over and over again if a prior loan guaranteed by the VA is repaid, or another
5 qualified veteran, who is willing to apply his or her entitlement to the loan balance,
6 assumes the existing loan.
7
8 • Entitlement. The amount of the veteran’s entitlement has been changed periodically
9 since the program’s inception in 1944. Currently it is a maximum of $106,025.
10 A veteran must serve a specified minimum amount of time to be eligible and be
11 honorably discharged. During peacetime, the eligibility period is 181 days, and during
12 periods of military conflict, 90 days. Discharge in less time than required due to
13 service-related disability automatically qualifies the veteran for benefits. Interestingly,
14 the eligibility period was set at 90 days during the Gulf War, but congress has not re-
15 instated the 181-day requirement. Therefore, the current eligibility period is only 90
16 days.
17 A veteran’s surviving spouse may be eligible if the veteran was killed in action or
18 died due to service-related injuries. The spouse may also be eligible if a veteran is
19 listed as missing-in-action or as a prisoner of war.
20
21 • Down payment. The VA does not require a down payment. The guarantee provided
22 to the lender by the VA replaces the need for a down payment as it reduces the risk
23 proportionately.
24 As an example, most conventional lenders require a down payment from 20 to
25 25% if the loan is not insured. Assume the VA entitlement of $106,025 was equal to
26 a 25% down payment. This would allow the borrower to obtain a loan of $424,100
27 ($106,025 x 4 = $424,100) with no down payment, if income is sufficient to meet the
28 monthly debt service. Lenders may require a down payment to meet the lender’s
29 standards, depending on the amount of the guarantee available and the income of
30 the veteran. A minimum down payment of 5% is required for manufactured home
31 loans.
32
33 • Interest rate. The interest rate is set by the lender, not the VA, and is determined by
34 negotiation between the lender and the borrower.
35
36 • Lender fees (points). As with other types of loans, points are added which are paid
37 to the lender for a VA loan. The lender, not the VA, sets the points paid. Points raise
38 the effective rate of interest paid by the borrower over the life of a loan. Each point is
39 equal to 1% of the loan amount and may be paid by either buyer or seller, as
40 specified in the contract.
41
42 • Maximum loan amount. The VA does not set a maximum loan amount. However,
43 the amount of the mortgage loan may not exceed the lesser of the sales price or
44 appraised value of the property.
45
46 A veteran may use VA-guaranteed financing for any of the following situations:
47
48 • To buy a home
49 • To buy a townhouse or condominium unit in a project that
50 has been approved by VA
51 • To build a home
52 • To repair, alter, or improve a home
53 • To simultaneously purchase and improve a home

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1 • To improve a home through installment of a solar heating and/or cooling system or

2 other energy efficient improvements
3 • To refinance an existing home loan
4 • To refinance an existing VA loan to reduce the interest rate and add energy
5 efficiency improvements
6 • To buy a manufactured (mobile) home and/or lot
7 • To buy and improve a lot on which to place a manufactured home which you already
8 own and occupy
9 • To refinance a manufactured home loan in order to acquire a lot
10
11 VA Appraisals
12
13 An approved VA appraiser must issue a Certificate of Reasonable Value (CRV) that is
14 based on the appraiser’s estimate of the value of the property to be purchased. The VA loan
15 amount may not exceed the CRV. The CRV is valid for six months on existing property and
16 12 months on new construction. The VA will never issue a CRV that shows the value to be
17 greater than the sales price.
18
19 Example:
20
21 If a home is selling for $300,000 and the appraisal comes in at $325,000, the CRV
22 will be $300,000. On the other hand, if the sales price is $300,000 and the appraisal is
23 $275,000, the CRV will be $275,000.
24
25 The veteran may proceed with the purchase if the sales price exceeds the CRV, but they
26 will be required to pay the difference in cash. The source of the cash must be approved by
27 the VA. If the CRV is not equal to or greater than the sales price, the veteran may withdraw
28 from the contract.
29
30 VA Qualifying Ratios (Debt Ratios)
31
32 The VA may be the easiest loan to qualify for in terms of ratios. The VA does not use a
33 housing expense ratio (front-end), only a total obligations ratio (back-end) of 41%.
34
35 SELLER FINANCING
36
37 Sellers can help the buyers finance the purchase of the property. When a seller does
38 this, it’s called seller financing.
39
40 Seller Financing Advantages
41
42 Seller financing can be complicated, but it does have its advantages.
43
44 • It can make a property more marketable, especially in times when interest rates are
45 high or loans are hard to get. When interest rates are high, mortgage payments are
46 also high. If the seller offers a below-market interest rate, the property is more
47 attractive to potential buyers.
48
49 • It can help buyers who are unable to qualify for lender financing. Buyers can avoid
50 paying some of the costs associated with lender financing, such as discount points
51 and loan fees. Sellers may also require a lower down payment than a lender.

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1 • Because of the potential savings, a seller might be able to get more for the property.
2 Buyers might be willing to pay more for the home in exchange for the advantage of a
3 low down payment, fewer closing costs, a good interest rate, and lower monthly
4 payments.
5
6 • It may give the seller important tax benefits. Since the seller is receiving payments
7 over a number of years, the seller needs to report only the profit received in the given
8 year on the tax return.
9
10 Types of Seller Financing
11
12 When a seller is the only source of the buyer's financing, it is called primary seller
13 financing. Both the purchase money loan and the installment land sales contract (described
14 below) are forms of primary financing. If the seller is not in a position to finance the total
15 sale, they can offer other options to the buyer.
16
17 • Purchase money loan. The purchase money loan is when the buyers sign a
18 promissory note that pledges to pay the seller the amount of the debt. The buyers
19 also sign a mortgage or deed of trust that gives the sellers a security interest in the
20 property the buyers are purchasing. The seller is actually extending credit to the
21 buyers, allowing them to pay off the purchase price in installments over time, instead
22 of having to pay the entire balance at closing.
23
24 • Installment land sales contract. As noted earlier in this chapter, with an installment
25 land sales contract, also called a contract for deed or land contract, the buyer does
26 not receive legal title until the final payment is made. The seller keeps legal title until
27 the debt is paid in full. The buyer receives equitable title until the debt is fully paid.
28 The buyer agrees to give the seller a down payment and to make regular
29 payments of principal and interest for an agreed-upon number of years. The buyer
30 also agrees to pay real estate taxes and insurance premiums and to maintain the
31 repairs and upkeep of the property. Many installment contracts contain a provision
32 that allows the seller to cancel the contract, keep all payments, and evict the buyer if
33 the buyer defaults. However, many states require the seller to refund at least a part
34 of the buyer's payments in that situation.
35
36 • Buydown. As mentioned earlier in this chapter, a buydown is a financing technique
37 used to reduce the monthly payment for the buyer during the initial years of the loan.
38 A lump sum payment is made to the lender at closing, usually by a builder as an
39 incentive to the buyer or by a family member trying to help.
40 In this case, however, the seller does not have to pay the lender a lump sum at
41 closing. Instead, the seller agrees to have their net proceeds reduced by the amount
42 of the buydown. It has the same effect as if the seller had agreed to reduce the
43 purchase price of the property.
44
45 • Closing costs. Sellers can agree to pay some of the closing costs (within the limits
46 lenders place on seller contributions). This allows the buyers to close the sale with
47 less cash.
48
49 • Lease option. If the buyers are not ready to make the purchase, or need more time
50 to raise down payment money or sell another home, the sellers might want to
51 consider a lease option. A lease option is a clause within a lease that gives the
52 tenants the right to purchase the property under specific conditions, usually at a
53 predetermined price and within a set period. The owner can choose to give the

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1 tenants credit toward the purchase price for some of the rent paid, but this is not a
2 requirement.
3
4 TRUTH IN LENDING
5
6 Finding the right loan can be a complicated task for buyers. They must compare the
7 costs of the loans and look at the structure of each to see how the particular features will
8 work for them both now and in the long term. When comparing loans, it’s not enough to look
9 at the interest rates only. The buyers must also consider the loan fees and other charges.
10 There is a federal law in force, the Truth in Lending Act (TILA), to help buyers make those
11 comparisons.
12 The Truth in Lending Act, Title I of the Consumer Credit Protection Act, is implemented
13 by Regulation Z. This law requires lenders to disclose to buyers the true cost of obtaining
14 credit, so that borrowers can compare the costs of various lenders. Regulation Z applies to
15 all loans that are secured by a residence. It does not apply to commercial loans or
16 agricultural loans over $25,000.
17 The provisions of Regulation Z cover disclosure of costs, the right to rescind the
18 transaction, advertising offers, and noncompliance penalties. The provisions are detailed
19 below:
20
21 • Disclosure. The lender must disclose all finance charges in the annual percentage
22 rate (APR) of the loan. The APR discloses the exact cost of credit. A total interest
23 percentage (TIP) must also be disclosed. A TIP reflects the sum of all interest paid
24 over the life of the loan as a percentage relative to the original loan amount.
25
26 • Right to rescind. In most cases, the borrower has a right to cancel the transaction
27 by notifying the lender within three days. This does not apply to residential first
28 mortgage loans but does apply to refinancing and home equity loans.
29
30 • Advertising. Any advertising is subject to Regulation Z disclosure if it contains any
31 of the following items, called “triggering terms”:
32
33 o Amount or percentage of down payment
34 o Installment payment or amount
35 o Specific finance change
36 o Number of installments
37 o Period of repayment
38 o Indication that there is no charge for credit
39
40 If an ad includes any of those items, all of the following items must be disclosed.
41
42 o The amount or percentage of down payment
43 o Terms of repayment
44 o Annual percentage rate and if increase is possible
45 o Total finance charge
46 o Total number of payments and due dates
47
48 Regulation Z applies to advertising in ALL media, including websites, billboards,
49 radio, TV, and direct mailings.
50
51 • Penalties. It is especially important that licensees do not violate the advertising
52 requirements of Regulation Z. The penalty for violation is twice the amount of the
53 finance charge or a minimum of $100, up to a maximum of $1,000. The violator

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1 could also be liable for court costs, attorney fees, and any actual damages. Willful
2 violation of regulation Z is a misdemeanor that is punishable by a fine of up to
3 $5,000 or one year in prison, or both.
4
5 THE LOAN APPLICATION PROCESS
6
7 Pre-Qualifying Your Buyer
8
9 You may want to have your buyer meet with a lender before you start looking for their
10 new house. This will allow both you and your buyer to determine the loan amount for which
11 they qualify. This is known as getting pre-qualified. It will save considerable time and effort
12 by making certain you're looking for real estate in the price range your buyer can afford.
13 As their real estate professional, you must impress upon your buyer the importance of
14 this part of the process. It is the buyer’s responsibility to start the mortgage process in a
15 timely manner as per the contract and make diligent effort to obtain the loan. These days,
16 bad credit can be a major issue. It would be better to find out their financial position up front
17 before you and your buyer waste a lot of time.
18 Many of your buyers do not understand the process to get a loan in order to purchase a
19 home. It is part of your duty to be informed of the process even if you will not be part of it.
20 One of the most important partners you must have is one of several mortgage loan
21 originators (MLO). They are the ones who collect the buyer’s information on the application.
22 You want to learn to keep the communication open between you and your MLO in order to
23 stay in control of your transaction. To qualify for a loan, the buyer must provide the following
24 items:
25
26 • Assets: Customer must have enough money for the down payment, closing cost,
27 and prepaid Items. It is very important that they don’t think that the only money
28 needed is for the down payment. Remind them that they can use a gift from friends
29 or family.
30
31 • Credit score: Bad credit can ruin a transaction; however, nowadays a bad credit
32 score can be easily fixed. Many professionals may help your customer to bring their
33 credit score up to where it needs to be in order to qualify.
34
35 • Income: This is possibly the most misconstrued of the three items required to secure
36 a home loan. The lender will look at the borrower’s adjusted gross income (AGI).
37 According to the IRS, the definition of AGI is, “Gross income minus adjustments to
38 income.” Gross income includes wages, dividends, capital gains, business income,
39 retirement distributions as well as other income. Adjustments to income include such
40 items as educator expenses, student loan interest, alimony payments, business
41 expenses (gas, car, phone, property taxes, insurances, etc.), or contributions to a
42 retirement account. The lender will consider the AGI and NEVER the gross income
43 before such expenses.
44
45 The Mortgage Process
46
47 Mortgage lenders are investors. They expect borrowers to pay back the amount
48 borrowed plus interest in order to make a profit on the loan. Lenders do not want to go
49 through a foreclosure process any more than borrowers do. To minimize the risk of
50 foreclosure, both the borrower and the collateral must be qualified before a loan will be
51 approved.

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1 The application process begins when the potential borrower (applicant) contacts a lender
2 to inquire about available loans and loan terms. A loan processor generally takes an
3 application and passes it on to a mortgage underwriter. The mortgage underwriter reviews
4 and verifies the information contained in the application to determine if the applicant is
5 qualified for the loan requested. The process of risk evaluation is called mortgage
6 underwriting.
7 Whether or not the applicant will obtain a mortgage loan depends upon how complete,
8 accurate, and truthful the application is. During the mortgage underwriting process, the
9 underwriter contacts the applicant’s current employers, past employers, and creditors in
10 order to verify the information in the application.
11 When a loan is approved, the lender assumes a number of risks. The primary risk is that
12 the borrower may default on the loan. If the borrower defaults, the lender can sue to have
13 the mortgaged property sold at foreclosure, but there is no guarantee that the proceeds of
14 the sale will be sufficient to cover the loan balance.
15 To assess the risk of default or collection problems, lenders evaluate both the applicant
16 and the property before approving a mortgage loan.
17
18 The Loan Application
19
20 The applicant is required to provide substantial information when they submit an
21 application for a loan.
22
23 • A purchase contract for the property in which they are interested.
24
25 • Numbers of all of their bank accounts and the address of the bank's local branch.
26
27 • Checking account statements from the previous two or three months, plus savings
28 account statements, if applicable.
29
30 • Tax returns for the previous two years, recent pay stubs,
31 W-2 withholding forms, or other proof of current
32 employment and income verification.
33
34 • Credit card bills for the past few months or canceled rent
35 or utility checks. These will help show their payment
36 history and the amount of revolving debt they have.
37
38 • Any information on other debt for which they get a monthly bill (car, student loans,
39 furniture loans, or store credit cards).
40
41 • If the applicant is self-employed, they will need to provide their company's current
42 balance sheets and recent tax returns.
43
44 • If the applicant is going to receive money from a relative or any support organization
45 to help pay for the property, they will need to provide a gift letter. This letter explains
46 that the money is a gift and will not need to be repaid.
47
48 The applicant is required to pay the application fee and the appraisal fee at time of
49 application.
50 By ensuring that the applicant provides all of the necessary documentation at the time of
51 application, the process will progress much faster and with fewer problems. At the end of the
52 meeting with the lender, the applicant should have a good idea of the amount and type of
53 loan for which they qualify. In addition, the lender should provide a good faith estimate of the

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1 amount of closing costs. After the applicant submits the completed mortgage application
2 with all of the supporting documentation, the lender will notify them within a short period
3 regarding whether or not they qualify.
4
5 Qualifying the Property
6
7 The property that serves as collateral for the loan is evaluated or appraised to determine
8 if it is of sufficient value. The appraiser analyzes the property and issues a report, which
9 gives an objective estimate of the property's market value. The appraiser's estimate will not
10 necessarily be the price agreed upon between the seller and potential buyer. The
11 underwriter is concerned with the market value of the property. Depending on what type of
12 loan the lender wants to issue and the current LTV, the lender bases the loan amount on
13 either the amount of the appraisal or the sales price, whichever is less.
14
15 Qualifying the Borrower (Applicant)
16
17 An applicant is evaluated to determine if they can repay the proposed loan. To qualify for
18 a mortgage loan, an applicant must meet the lender's qualifications in terms of income, debt,
19 and net worth. In addition, the applicant must demonstrate sufficient creditworthiness to be
20 an acceptable risk.
21
22 Income
23
24 The applicant's income must be enough to cover the proposed mortgage payment and
25 other monthly expenses. The applicant's source(s) of income must be reasonably
26 dependable and stable. Continuous employment for at least two years in the same
27 occupational field is generally used as criteria for loan approval. An applicant's income
28 indicates his or her ability to make the payments that are required to repay the loan.
29 The applicant's stable monthly income can be derived from regular wages from a full-
30 time job, bonuses, commissions, overtime pay, part-time earnings, self-employment income,
31 retirement income, alimony or child support, or investment income. Mortgage lenders do not
32 accept income from temporary employment, unemployment compensation, or contributions
33 from family members to meet the lender's standards for making a loan.
34 The loan officer, who performs the underwriting, verifies all of the
35 information included on the application by actually contacting the
36 references given. The applicant usually signs a verification form that
37 allows the lender to collect the employment information. There is a
38 form called Request for Verification of Employment that most lenders
39 use. By signing this form, the applicant authorizes his or her employer
40 to reveal confidential information about his or her job status. The
41 information includes the applicant's wages and length of employment.
42 The loan officer asks the employer to give an opinion of the applicant's
43 attitude on the job, the probability of continued employment, and a
44 prediction of what the applicant's prospects are for pay increases or
45 promotions. Alternatively, the lender could choose to collect W-2
46 forms and pay stubs from the applicant and then verify the information with the employer
47 through a phone call.
48 For income that does not come directly from an employer, the lender will use other
49 verification methods.
50
51 • The lender may require copies of federal income tax returns for the previous two
52 years to verify income from commissions or self-employment.

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1 • Self-employed applicants may have to provide audited financial statements.

2
3 • The lender may require copies of court orders to verify alimony or child support
4 income and copies of bank statements to show the money was received and
5 deposited.
6
7 • Owners of rental property may have to submit copies of their ledgers for their rental
8 properties, along with tax returns showing the income.
9
10 Debt
11
12 Once the lender has established the applicant’s monthly income, the lender will
13 determine if that income is enough to pay a loan by establishing an income ratio and a debt
14 ratio.
15
16 • Income ratio. The income ratio establishes the applicant's capacity to pay by limiting
17 the percent of gross income they may spend on housing costs. Housing costs
18 include the principal, the interest, the taxes, and homeowner’s insurance (or the
19 PITI), and may include some monthly assessments for mortgage insurance and
20 utilities.
21
22 • Debt ratio. An applicant’s debt ratio is calculated based on the applicant’s monthly
23 obligations, including those items or payments the borrower must make for other
24 debts. These debts include car payments, revolving charge accounts, etc.
25
26 As mentioned earlier in the conventional, FHA, and VA loans sections, each loan
27 program has its own income and debt ratio requirements.
28
29 Net Worth
30
31 The underwriter examines the assets and liabilities section of the applicant's application
32 very carefully. The information about the applicant's net worth is important to the lender as it
33 gives an indication of the applicant's ability to keep up the payments on the loan in the event
34 that they lose their job. This is especially important in a case where the applicant’s income is
35 not as good quality as the lender would like. Significant net worth could make the difference
36 in whether or not the loan is approved.
37 If the applicant’s net worth is predominantly cash, the lender will be very encouraged. In
38 such a case, it becomes much more likely that the applicant has the funds needed for the
39 down payment, closing costs, and other expenses they might encounter in the purchase of
40 the property. Some lenders require that applicants have a reserve of cash after the
41 purchase is complete, at least enough to cover the mortgage payments for a few months in
42 the event of a temporary financial crisis. It raises the lender’s comfort level to know that the
43 chances of a default during an emergency are greatly reduced with cash reserves.
44 An applicant’s net worth is determined simply by subtracting debts from assets.
45
46 Credit History
47
48 The underwriter obtains a report from a credit-reporting
49 agency and reviews the applicant's credit history. The credit
50 report includes information about debts and repayment for
51 the preceding seven years. Negative information such as
52 slow repayment, collections, repossessions, foreclosures,
53 judgments, and bankruptcies may cause the underwriter to
54 refuse the application.
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1 An applicant's credit score is used to evaluate the risk associated with a loan, whether or
2 not the lender will make the loan, and if so, to determine the rate of interest the lender will
3 charge.
4 Credit scoring was introduced by the Fair Isaac & Company (FICO) over 30 years ago.
5 It’s important for you to have a fundamental understanding of this very important loan-
6 qualifying tool.
7 Although Fair Isaacs will not disclose the exact method used to establish a credit score,
8 several known key points can be useful for you. This table is a breakdown of the major
9 components that are used to develop the score and the relative weight given to each. As
10 you can see, the payment history is the most important aspect of a credit report.
11 The FICO score measures the applicant's willingness to meet debt obligations and
12 weighs heavily on the lender's decision to underwrite a loan. FICO scores can range from
13 300 to 850. The higher the score, the lower the risk of default by the borrower. Different
14 types of property, such as single-family versus two- or three-family, are typically
15 underwritten by using different score requirements.
16 Scores below 580 are considered poor and those above 660 are considered excellent.
17
18 FICO Credit Score Development
19 Relative
Component Included in Component
20 Weight
21 Payment history Late payments, judgments, bankruptcy, collection actions 35%
22
Number of open accounts, average open balance, open
23 Outstanding debt 30%
balance compared to credit limits
24
25 Credit history Age of open accounts 15%
26 Credit report Number of inquiries related to new accounts, time since
10%
27 inquiries the last inquiry
28 Type of credit Finance company as opposed to revolving credit 10%
29
30 Scores must be thought of as an indicator of risk. Applicants with scores below 580 may
31 not automatically be denied credit; however, the interest rate will probably be higher and the
32 type of financing available may be limited.
33
34 MORTGAGE FRAUD
35
36 Mortgage fraud is a material misstatement, misrepresentation, or omission relied upon
37 by an underwriter or lender to fund, purchase, or insure a loan. Mortgage loan fraud is
38 divided into two categories: fraud for property and fraud for profit.
39
40 • Fraud for property. Fraud for property and/or housing entails misrepresentation by
41 the applicant to purchase a property for a primary residence. This scheme usually
42 involves a single loan. Although an applicant may embellish income and conceal
43 debt, their intent is to repay the loan.
44
45 • Fraud for profit. Fraud for profit, however, often involves multiple loans and
46 elaborate schemes perpetrated to gain illicit proceeds from property sales. Gross
47 misrepresentations concerning appraisals and loan documents are common in fraud
48 for profit schemes, and participants are frequently paid for their participation.
49
50 Although there is no centralized reporting mechanism for mortgage fraud complaints or
51 investigations, numerous regulatory, industry, and law enforcement agencies collaborate to
52 share information used to assess the current fraud climate.

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1 In order to protect you and your client, it is imperative that you be able to distinguish
2 legal mortgage practices from illegal mortgage fraud.
3 Mortgage fraud can happen in numerous ways and be accomplished with the intentional
4 or unintentional involvement of a real estate professional. Mortgage fraud, as described by
5 the FBI,1 includes:
6
7 • Property flipping. Property flipping fraud occurs when a property is purchased,
8 falsely appraised at a higher value, and then quickly sold. The appraisal information
9 is fraudulent, thus making the transaction illegal.
10
11 • Nominee loans or straw buyers. Nominee loans (or straw buyers) fraud occurs
12 when the identity of the applicant is concealed by using a nominee who allows the
13 borrower to use the nominee's name and credit history to apply for a loan.
14
15 • Fictitious or stolen identity. Fictitious or stolen identity fraud occurs when the
16 applicant uses a fictitious or stolen identity on the loan application, using the true
17 person’s name, personal identifying information, and credit history without his or her
18 knowledge.
19
20 • Silent second. Silent second fraud occurs when the buyer borrows the down
21 payment from the seller through a non-disclosed second mortgage. The primary
22 lender believes the borrower has invested his own money in the down payment, not
23 knowing it was borrowed from the seller. The second mortgage is usually not
24 recorded, thereby concealing its existence from the primary lender.
25
26 • Inflated appraisals. Inflated appraisals occur when the appraiser is in collusion with
27 a borrower and provides a false and inflated appraisal of the property’s value to the
28 lender. The lender bases the loan amount on the fraudulent value.
29
30 • Equity skimming. Equity skimming fraud occurs when a buyer uses a stolen
31 identity, false documents, and false credit reports to obtain a mortgage loan. Once
32 the loan is obtained, the buyer does not make any mortgage payments; however,
33 they collect rent payments on the property until foreclosure takes place several
34 months later.
35
36 Other common forms of mortgage fraud include:
37
38 • Employment fraud. Employment fraud occurs when a borrower lies about their
39 employment, their position at the company, or even uses a fake company name in
40 order to justify their falsified income statement.
41
42 • Occupancy fraud. Occupancy fraud occurs when a borrower obtains a mortgage by
43 claiming they will occupy the property as their primary residence, yet have no
44 intention to occupy the property, and are purchasing it as an investment. This tactic
45 allows the investor to obtain the property at a more favorable interest rate.
46
47 • Shotgunning fraud. Shotgunning fraud occurs when a borrower applies for and
48 receives multiple loans for the same property at the same time, thereby allowing
49 them to obtain funds well in excess of the value of the original loan.

1
Source: FBI Financial Crimes Section, Financial Institution Fraud Unit, Mortgage Fraud: A Guide for Investigators, 2003.

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1 Foreclosure Schemes
2
3 Foreclosure schemes target people with financial problems who are at risk of losing their
4 home. The homeowner is contacted by a person or company who claims that, for an
5 advance up-front fee, the company can get rid of the homeowner’s debt and save their
6 home. The person or company takes the money and disappears.
7 Foreclosure rescue schemes involve actually purchasing the property and leasing it back
8 to the original homeowner. The original homeowner is told that they have the right to
9 purchase the property back at a later date. This may or may not ever occur, or if it does, the
10 homeowner may have to purchase it at an excessive amount or interest rate.
11 Another scheme involves the homeowner receiving an offer to refinance the loan to
12 save the home from foreclosure. The homeowner signs all of the necessary documents only
13 to find out they actually sold the home and are now facing eviction.

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CHAPTER 5 REVIEW QUESTIONS

1. The is where borrowers and mortgage

originators come together to negotiate terms and effect mortgage transactions.
2. Loan is the process by which a borrower applies for a new loan
and a lender processes that application.
3. The was developed to provide a
constant source of funds for making real estate loans. It consists of lenders who
purchase mortgage loans and assemble them into one or more loan packages for resale
to other lenders or investors. Examples include , ,
and .
4. Lenders often charge a loan fee to cover the cost of servicing the
loan. points, paid to the lender with a new loan, represent prepaid
interest. Each point paid is % of the loan amount.
5. The is the rate of interest actually paid after lender fees
are taken into account. The rule of thumb for calculating this interest rate is % for
each point paid.
6. refers to how the principal and interest are paid over the life of a
loan repayment period. Most loans are ,
which means the payment is sufficient to repay the interest owed and the loan principal
in full over the life of the loan.
7. An loan is a type of mortgage loan in which the borrower is only
required to pay off the interest on the loan. At the end of the loan term, the borrower must
be able to pay off the entire principal with a payment, or get another loan.
8. With a , the monthly payment for principal and
interest gradually increases by a certain percentage each year for a certain number of
years and then levels off for the remaining term of the mortgage. The borrower’s initial
payments are not enough to amortize the loan, so the principal balance increases as a
result of .
9. A loan is any loan that is not insured or guaranteed by the
government. These loans are made by lending institutions and private lenders, usually for
or year periods.
10. Lenders usually require to reduce their risk
when the loan amount exceeds 80% of the property value.
11. The housing expense ratio is the combined , ,
, and payment (referred to as ) divided by the borrower’s
gross monthly income.
12. A mortgage requires that ½ of the mortgage payment be paid every two
weeks. This is the same as making monthly payments and reduces the time
needed to amortize the loan.
13. The VA may be the easiest loan to qualify for in terms of ratios. The VA does not use a
front-end housing expense ratio, only a (back-end) of %.
14. The process of reviewing and verifying the information on a mortgage loan application to
evaluate the risk of lending the money is called mortgage .
15. When applying for a mortgage loan, the borrower is required to document any gift funds in
a , which explains that the money is a gift and will not need to be repaid.

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CHAPTER 5 PRACTICE EXAM

1. There are three types of mortgages: 5. The mortgage underwriter qualifies

conventional, FHA, and VA. Which the applicant’s net worth. Why is the
statement accurately describes these borrower’s net worth significant to
mortgage types? the lender?
a. Both the FHA and the VA make a. The borrower’s net worth shows how
loans. the borrower spends their cash.
b. The FHA insures loans. VA loans are b. The borrower’s net worth is a
guaranteed. reflection of the borrower’s income.
c. FHA loans are guaranteed. c. The borrower’s net worth indicates
d. Conventional loans are insured by the ability to keep up with the loan
the government. payments if they lose their job.
d. The borrower’s net worth is a
2. The FICO score measures the prediction of their FICO score.
applicant’s willingness to meet debt
obligations. What does the FICO 6. From whom might an individual
score include in its measurements? borrower most likely obtain financing
a. Down payment amount, loan for a specific commercial property?
amount, and interest rate a. Credit union
b. Income, assets, and outstanding b. Mortgage loan originator
debt c. Pension fund
c. Payment history, outstanding debt, d. Syndicate
and credit history
d. Income ratio, debt ratio, and loan-to- 7. Which of these entities is a
value ratio shareholder-owned company that
works to make sure mortgage money
3. Which qualifying ratio is based solely is available for people across the
on the relationship between the country by making sure that lenders
monthly PITI payment and the don’t run out of mortgage funds?
borrower’s monthly income? a. Freddie Mac
a. Debt ratio b. Ginnie Mae
b. Loan-to-value ratio c. Farmer Mac
c. Housing expense ratio d. Fannie Mae
d. Total obligations ratio
8. Which of the following is NOT
4. Which of the following is NOT a generally a requirement for a VA
characteristic of an FHA loan? loan?
a. Standard LTV ratio is 96.5% a. Certificate of eligibility
b. UFMIP is paid at closing; AMIP is b. Certificate of reasonable value
paid over the life of the loan (CRV) more than loan amount
c. Housing expense ratio (front-end) c. High down payment
should not be greater than 31% d. Funding fee
d. Total obligations ratio (back-end)
should not be less than 43%

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9. What is the loan-to-value ratio (LTV) 12. Which statement best describes
for a property being purchased? property flipping fraud?
a. The ratio of the down payment to the a. When a borrower purchases a
value of the property. property, remodels it, and then sells
b. The ratio of the mortgage principal to it for market value.
the value of the property. b. When a lender purchases a
c. The ratio of the mortgage principal to foreclosed property and sells quickly
the down payment. at a loss.
d. The ratio of the down payment to the c. When a borrower pays off the
mortgage principal. mortgage as soon as possible.
d. When a borrower purchases a
10. Which of the following primary property, has it falsely appraised at a
mortgage market institutions holds a higher value, and then sells it
major portion of the savings of the quickly.
American public and is the largest
source of funds for financing both 13. Steve has an existing loan with
apartment projects and commercial Sunray Bank and applies for a second
properties? loan. He does not have to pay off his
a. Life insurance companies existing mortgage in order to qualify.
b. Credit unions For which type of loan is Steve
c. Ginnie Mae applying?
d. Real estate investment trusts a. Wraparound loan
b. Home equity loan
11. Which statement does NOT c. Blanket loan
accurately describe an amortized d. Graduated payment loan
loan?
a. Each payment applies first to the 14. To which of the following does
interest and then to the principal. Regulation Z (the Truth-in-Lending
b. At the beginning of the loan, the Act) apply?
amount of each payment applied to a. $35,000 farm loan
the principal is the highest and b. $50,000 restaurant loan
decreases over time. c. $75,000 condominium loan
c. Over the life of the loan, the amount d. $85,000 warehouse loan
that goes toward interest in each
payment decreases. 15. Which disclosure is NOT required by
d. The interest amount in each payment the Truth-in-Lending Act?
is the principal amount multiplied by a. Mortgage loan originator license
the interest rate of the loan. b. Loan fees
c. Annual percentage rate (APR)
d. Points paid

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WORKING WITH BUYERS

OVERVIEW Listings produce buyers. A steady source of buyers is important,
but you also need qualified buyers who are ready, willing, and able to
buy. Spending time with unqualified buyers is a waste of your time.
Preparation and planning is key to making sure that your first contact
with a prospective buyer leaves the buyer with a good impression of
you and helps you determine the motivation and intent of the buyer.
Once you have qualified buyers, you need to set up plans for showing
them the homes that most interest them. When your buyers find a
home they want and decide to make an offer, you need to know how
to walk them through the process of filling out a purchase and sale
agreement and then help them to handle the seller’s response to their
offer.

OBJECTIVES After completing this chapter, you should be able to do all of the
following:

• Discuss where to find and how to qualify buyers

• Describe the various aspects of working with your qualified
buyers, including showing homes, overcoming objections,
putting together offers, handling negotiations, and keeping a
pending file
• Identify the essential elements of a contract and reasons for
termination
• Describe the characteristics of an option contract
• Identify various sections of a purchase and sale agreement

1 BUYER PROSPECT SOURCES

2
3 The best way to succeed with buyers is to make sure that you have a steady source of
4 qualified buyers. Several sources for finding buyers exist.
5
6 • Listing inventory. The very best source for obtaining buyers is your listing
7 inventory. If you have the listings, the buyers will follow. Not only do you market your
8 listings to other real estate professionals who have buyers, but directly to the buyers
9 themselves. Buyers who respond to property signs, internet advertising, print
10 advertising, or word-of-mouth may buy your listings or buy another property through
11 you if they are qualified.
12
13 • Sphere of influence. Another excellent source of buyers is your sphere of influence.
14 The consistent mailings, calls, and face-to-face contacts with your sphere is geared
15 to remind them that you are in the real estate business, you are good at what you do,
16 and you want their business. Working your sphere properly can generate qualified
17 buyer prospects that are far more likely to be loyal to you.

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1 • Farm area. Your farm area is an important source of buyers. If you have established
2 a geographic farm area, consistent mailings will not only generate listings but will
3 also produce buyer inquiries on the listings you are promoting within your farm area.
4 In addition, you will get general buyer inquiries.
5 Homeowners who live in your farm area have friends and relatives who might
6 also like to live there. Because of the consistent contact from periodic mailings and
7 prospecting, they will feel like they know you. That familiarity makes them feel more
8 comfortable to call you instead of some other broker they don’t know.
9
10 • Social media. Think of your social media network as a
11 “Big City” that consists of various business clubs, social
12 clubs, and unique interests that is open to everyone.
13 Networking means you can go out, find them, and bring
14 them back to you. It’s a good idea to connect with your
15 market through social media and the internet. You can
16 become the trusted adviser for those who follow you.
17 There are approximately 29.6 million small business owners in the country and
18 69% of them don’t know how to use social media effectively to acquire customers
19 from the Internet. Real estate professionals today, like other business owners, must
20 understand and master the effective use of social media in growing their business.
21 Traditional marketing doesn’t produce the same impact as in past. A combination of
22 traditional, Internet, and social media is required to obtain total market saturation.
23 Building large numbers of Facebook fans, Twitter followers, LinkedIn connections,
24 and blog readers is a good place to start.
25 A good way to rapidly increase your social media audience is to join as many real
26 estate-associated groups as possible (e.g., “my city real estate,” “my city for sale”)
27 and to create new ones in which you invite people to join. Remember we talked
28 about farming? A very important part of farming is to preview property in the area you
29 want to specialize. Make it a point to always post videos, pictures, and comments
30 about the properties you are previewing. This will have a multi-faceted effect, such
31 as:
32
33 • It will help you to know your area and farming market.
34 • It will expose property to a large number of people that might see it live or
35 posted.
36 • It will make you an expert on the area in the eyes of your audience.
37 • It will generate potential buyer and seller leads.
38
39 Other Sources
40
41 There are numerous other sources for qualified buyers.
42
43 • Open houses. Open houses on a regular basis can be
44 an extremely effective method of obtaining good, qualified
45 buyers. The odds of selling a home from an open house
46 can be somewhat small, but the chances of obtaining a
47 qualified buyer are excellent. Most people who take the
48 time to view an open house tend to be serious about
49 buying. Another benefit of open houses is the potential of
50 acquiring another listing. The surrounding neighbors may
51 take notice of your efforts and request that you view their home for possible sale.

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1 o Making an open house is more than simply placing two balloons on the door
2 and a sign on the yard. A professional will start preparing it one week earlier
3 by calling neighbors, sending open house flyers, bringing flyers to local
4 stores, etc. Check to see if authorization is needed by local ordinances. Make
5 it part of your homework after you read this part of your book to research how
6 to perform a professional open house. You will find plenty of literature and
7 videos online to help you do so.
8
9 • Referrals.
10
11 o Referrals from other brokers can be an excellent source of
12 qualified buyers. However, this source is usually best
13 established over an extended period by developing strong
14 relationships with other brokers outside of your market area
15 or area of expertise.
16 o Referrals from past clients are also an excellent source for
17 qualified buyers who are already inclined to work with you.
18 o We mentioned in the previous pages how important it is to
19 have professional partners in this industry. You will need to
20 work with MLOs, property inspectors, insurance agents, title companies,
21 attorneys, and CPAs. You are in the position to bring them customers; ask them
22 for referrals as well. Make sure they have at least 10 of your business cards and
23 remember to ask for their referrals periodically.
24
25 • Walk-ins. Walk-ins, or buyers you obtain by working floor duty at the brokerage
26 office, can be an additional source.
27
28 • Buyer seminars. Buyer seminars can be a source of potential buyers. However,
29 many prospects may not be qualified.
30
31 THE CHANGING BUYER MARKET
32
33 Diversity is Good Business
34
35 With an increasing minority population, minority loan programs, and higher wages, the
36 percentage of minority first time homebuyers increases. It is good business for licensees to
37 develop the skills to reach the growing multicultural market of prospective homeowners.
38 As the U.S. Census has reported, America is more culturally diverse than at any other
39 time in the nation's history. This diversity is now considered to be one of the country's
40 greatest assets. It not only affects the way we view the world, but it affects the economy of
41 the world. Therefore, meeting the needs of America's diverse consumer groups has become
42 a pragmatic strategy for business of all kinds.
43 In this diverse marketplace, expanding home ownership must be about opening new
44 doors; new doors to profitability for licensees, and new doors to minority citizens and
45 immigrants who want to own their own homes. Multicultural outreach is good for minorities
46 hoping to own their first home. The initiative offers extraordinary benefits to licensees by
47 substantially increasing their market share in this relatively untapped market.
48 The National Association of REALTORS 2016 Profile of Home Buyers and Sellers
49 reported the following statistics on recent homebuyers nationally:
50
51 • 25% of recent homebuyers reported themselves as a race other than Caucasian.

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1 • 27% of first-time homebuyers identified as non-white/Caucasian, whereas only

2 15% of repeat buyers did so.
3
4 • 7% of first-time buyers, compared to 2% for
5 repeat buyers, reported a language other than
6 English as their primary language.
7
8 • 13% of first-time homebuyers, compared to
9 8% for repeat buyers, reported being born
10 outside of the United States.
11
12 Suburbs vs. Cities
13
14 Prior to 2010, historical census data indicated that
15 minority population growth had spread to the suburbs.
16 Reports from the Brookings Institution showed that minorities were responsible for the
17 bulk of suburban population gains between 1990 and 2000 in 65 of the nation's 102
18 metropolitan areas with populations over 500,000.
19 However, census data collected in 2010 - 2011 showed that there was a
20 demographic reversal, showing that for the first time in more than nine decades, the
21 major cities of the nation’s largest metropolitan areas grew faster than their combined
22 suburbs. City gains and suburban downturns were evident in all parts of the country.
23 This “back-to-the-city” movement was partially attributed to young professionals, empty
24 nesters, retirees, and new immigrants that were drawn to the downtown life experience
25 and activities. However, factors such as the recession, rising real estate costs, high
26 student debt, and a challenging job market may have contributed to the lack of home
27 purchases in the suburbs, especially for first time homebuyers.
28 Since 2011, statistics show that the trend may be reversing again, with the
29 suburban populations once again growing faster than cities. Many first-time millennial
30 homebuyers are opting to purchase homes in the suburbs instead of the cities. With
31 the rise of telecommuting, options for working remotely instead of commuting to the
32 city are also becoming more popular.
33
34 QUALIFYING THE BUYER
35
36 Once you have your systems in place for generating buyers, you will need to qualify
37 those buyers. In order to be successful and meet your goals, you must plan ahead and
38 utilize your time wisely. Each day is an opportunity, and how you use that opportunity will
39 have a direct effect on your business.
40 In order for you to become successful, you must work on your goal every day. You must
41 learn to work with only qualified buyers. Working with an unqualified buyer is a huge waste
42 of your time. Remember, your time is valuable.
43 Upon receiving an ad call or some other type of property or
44 buyer inquiry, you make a determination as to how much time
45 and effort you are going to invest in this buyer. Make your
46 preliminary decision based on your conversation with the
47 buyer and the answers they provide to your questions.
48 Remember, this is just the start of qualifying, but you want to
49 decide if the buyer is worth meeting in person. You should always give the buyer the benefit
50 of the doubt, until you are able to determine otherwise.

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1 Keep the person on the phone long enough to get a feel for the buyer’s motivation and
2 for them to feel comfortable with you. Generate the feeling that you are interested in helping
3 the buyer and that you are more than competent to accomplish the results for which the
4 buyer is looking.
5 If possible, have your computer on while talking with the buyer. You will make a good
6 impression on the caller regarding your knowledge of the market and access to the right
7 kind of information by doing a quick search for the basic property type about which the buyer
8 called. If you are not on your computer, or don’t have access to the information, you may
9 have to call them back. This is not quality service.
10 If you can provide quality service from the first contact, you will be starting out with an
11 advantage and will be well on your way to building buyer loyalty.
12
13 Concepts and Questions
14
15 Some concepts to follow and questions to ask include the following:
16
17 • Like previously stated it is of help to always ask everyone the same questions, have
18 your broker help you in the choice of the questions in order to qualify your buyer.
19 There is a right and a wrong way to ask the same question sometimes. For example,
20 asking your customer, “Do you have any children? How old are they?” might be
21 interpreted that children are not welcome. However, it is a very important piece of
22 information in order to fulfill their needs. So, instead, try asking this, “Are good
23 schools important in your home search?” That will allow you to find out if they have
24 children since good schools are important to them.
25
26 • Use your time wisely and ask for the prospect’s name and number early on in the
27 conversation. If he or she won’t give that information, then that prospect is probably
28 not worth pursuing.
29
30 • Ask questions and listen. You need to provide solid information, but remember, a
31 successful salesperson listens more than they talk. You need to understand the
32 prospect and the prospect’s needs.
33
34 • Get a general picture of what the prospect is looking for.
35
36 • What areas are of interest?
37
38 • What is the price range the prospect has in mind?
39
40 • How long has the prospect been looking?
41
42 • Is the prospect working with another real estate licensee?
43
44 • Discuss a property or two that are interesting to the prospect. Get his or her attention
45 with something specific.
46
47 • Ask if the prospect will be paying cash or using financing. This is a good way to lead
48 into financial qualification without making the prospect feel that you think they can’t
49 afford it.
50
51 • Ask if the prospect has been pre-qualified. Explain that in this market, most sellers
52 are expecting and demand a prequalification letter at the very least, and many
53 demand a pre-approval letter. Ask if it would be possible to have your mortgage loan

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1 originator contact them. Stress that there is no obligation to use that mortgage loan
2 originator. Be sure to explain the benefits of being pre-qualified when it comes to a
3 home search.
4
5 It is always a good idea to briefly summarize back to the buyer the key aspects of what
6 you heard and understood from them in the conversation. This tells the buyer that you
7 understand their needs and provides an opportunity for the buyer to correct any
8 misunderstandings.
9 It is important to ask the buyer what their priorities are, and which would be an absolute
10 need or just a want. You should also ask the reason for certain needs. For example, they
11 might tell you that they need a backyard. Asking them why they need a backyard might
12 reveal they have a dog. Asking what kind of dog will help you identify the size of backyard
13 they need. Having a teacup poodle is not the same thing as having a 100-pound German
14 shepherd, but you won’t know if you don’t ask.
15 At this point, if you are comfortable and feel that the prospect is worth a temporary
16 investment of your time, set an appointment to show them one or two properties, preferably,
17 your listings. At the showing appointment, you will be able to determine if you want to
18 continue investing your time and effort into this buyer. You may want to ask a few more
19 questions at the showing to help you make a decision. If you decide to take them on as a
20 client, you can conduct a more thorough interview at your next meeting.
21 Some questions to use in this situation are those listed below.
22
23 • What does the buyer really need? Find out their absolute must-haves.
24
25 • What would they like? If they could have some extras or upgrades, what would they
26 be?
27 • What is their motivation for buying? Do they want the property to live in or as an
28 investment?
29
30 • What is their time frame?
31
32 You should be sure to record the buyer’s information in your contact management
33 database. Include any details that were discussed or left open for your next meeting. A good
34 habit to develop is to date the information at the time you enter it.
35
36 Protecting Your Interest with Buyers
37
38 If permitted, a buyer will use a licensee for their time, expertise, market knowledge, and
39 of course, to play tour guide. Most licensees place little or no value on their time or
40 expertise; in fact, when dealing with buyers most licensees do everything for FREE, with no
41 realistic expectations of ever getting paid. They just hope that after they invest all of their
42 time, money, and effort the buyer might actually buy a home through them; but they have
43 nothing to hold the buyer to that. Not only do many licensees de-value their time, but also
44 most don’t even ask for loyalty from the buyer. If you don’t value your time, how can you
45 expect your buyer to value it?
46
47 INTERVIEWING THE BUYER
48
49 In the fast-paced world of real estate today, the buyer interview will look a little different
50 than it did 20 or even 10 years ago. At that time, the licensees met with a buyer at their
51 home or in the office and had a fairly, formal meeting to discuss all the details of the buyer’s
52 real estate transaction. Today, licensees must accomplish the same results, but usually
53 don’t have the opportunity to do it under such formal circumstances.

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1 Today, the buyer interview is typically done during showings or in the car. This can be a
2 very structured interview. However, if it can be done in a more casual manner and still get all
3 the answers and make all the points, it is usually more enjoyable to the buyer and seems
4 less invasive and time consuming.
5 The main objectives of the buyer interview are:
6
7 • To further qualify the buyer
8 • To give them an orientation of the entire process
9 • To get their loyalty
10 • To get them to commit to buying
11
12 When you speak with a prospect on the phone, you do
13 the preliminary qualification. When you show them some properties, you have the
14 opportunity to get a better feel for their requirements and motivations.
15 Start out with some casual conversation in order to build rapport with them. Then
16 gradually transition into summarizing the information you already received on the phone,
17 such as their wants, price range, area, timeframe, and reason for buying (motivation). Try to
18 learn a little bit more about them and what they do.
19 If you like the buyer and feel that they would be worth your time and that the likelihood of
20 them buying is high, let them know you can offer a committed, professional level of service.
21 Tell them that you will carefully scour the market for their exact needs, will discuss the
22 properties with them, and show them all the properties that could possibly meet their needs.
23 In addition, tell them that you will watch the market daily for new properties and look at the
24 For Sale by Owners as well. This is a professional form of buyer representation, and you are
25 a true professional.
26
27 If they sound interested in what you have to offer, explain to them how the process
28 works.
29
30 • Explain, once again, how you will watch the market for them.
31
32 • Tell them you will provide them with detailed property information that meets their
33 needs.
34
35 • Explain how you will work with them directly to assist in narrowing down their
36 possible choices.
37
38 • Discuss how the showing process works.
39
40 • Discuss the possibility of compromise and how it may enter into their negotiations.
41
42 • Describe the process of making an offer once they find the property that meets their
43 needs.
44
45 • Give them a blank copy of the purchase contract for their review.
46
47 • Explain exactly how an offer is made, such as in writing, required deposits, terms,
48 dates, and contingencies.

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1 • Explain how the offer to purchase is handled, such

2 as the offer, counteroffer, and so on. Then explain
3 how the acceptance and effective date works.
4
5 • Explain what will be expected of them during the
6 pending process and prior to closing.
7
8 • Review and determine their targeted timeframes,
9 such as when would they like to be in or close on
10 their new property. (Based on that information, you
11 will be able to determine when they need to be under contract, which is
12 approximately 45 days prior to closing.)
13
14 • Ask them if they are ready to go forward and make an offer when they find exactly
15 what they are looking for.
16
17 • It is critical for you to ask for buyer loyalty. In return for your committed service, you
18 are asking that they be loyal to you, as well. One approach is to ask for a two-to-
19 three-week commitment (if you think that will be long enough) and explain that for
20 you to be able to give them the time, effort, and focus that they need from you, they
21 need to make all real estate inquiries through you. This means that they should not
22 call any other licensees or For Sale by Owners during this period.
23
24 After this interview, you should know what your buyer wants and why, that they’ll be pre-
25 qualified, they’ll be loyal, and they have an understanding of the entire process. Then set a
26 strategy and implement it.
27
28 The Buyer’s Interview of You
29
30 It is extremely important to remember that an educated consumer will want to interview a
31 broker before deciding to work with them. Therefore, while you are interviewing the buyer,
32 they will also be interviewing you.
33 Choosing a real estate licensee can be a daunting task, considering how many licensees
34 from which there are to choose. For the consumer, taking the time to interview a perspective
35 licensee properly will ensure that they hire the one who is best qualified to meet their needs.
36 An experienced licensee should expect to be interviewed by prospective buyers and
37 should be prepared to answer all questions in a professional manner.
38 It is a good idea to proactively provide this information to the buyer, even if they don’t
39 ask. A concise and professional looking flyer or fact sheet that introduces you, provides
40 information related to your real estate history and qualifications, and contact information is a
41 tool for helping the buyer build confidence in you.
42
43 Questions from an Educated Buyer
44
45 • How long have you been practicing real estate?
46 • Can you provide references from past buyers?
47 • How many buyers are you working with at the present time?
48 • Are you full-time or part-time in real estate?
49 • Will you handle all of my transactions? Will they be referred to an assistant or
50 processor?
51 • How well do you know the area I am interested in?
52 • Will you send us property information before the actual showing?
53 • What distinguishes you from other brokers?
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1 • Can you assist us in obtaining financing?

2 • Will you prepare a CMA for any property we may be interested in?
3 • Do you point out negative aspects of a property as well as positive?
4 • Can you assist us with selecting an inspection company, title company, or attorney?
5 • Will you show us foreclosed and short sale properties?
6 • Can you help us with a For Sale by Owner?
7 • Will you require a written agreement and, if so, what type?
8 • How will we communicate?
9 • How do you get paid?
10
11 BUYER STATISTICS
12
13 The National Association of REALTORS publishes an
14 annual “Profile of Home Buyers and Sellers” report. The
15 following is from the NAR 2016 summary report.
16
17 To obtain the full report,
18 visit the NAR website:
19 www.realtor.org
20
21
22 Characteristics of Homebuyers
23
24 • 58% of first-time homebuyers were married couples; 71% of repeat homebuyers
25 were married couples.
26
27 • The share of first-time homebuyers increased in 2016 to 35% of the market share,
28 but was below the historical norm of 40% among primary residence homebuyers.
29
30 • 11% of buyers purchased a multigenerational home. The top three reasons for
31 purchasing a multi-generational home were to take care of aging parents (19%), cost
32 savings (18%), and children over the age of 18 moving back home (14%).
33
34 • The median age of first-time buyers increased in 2016 to 32 and decreased to age
35 52 for repeat buyers. The largest share of homebuyers was the 25 to 34 age group,
36 accounting for 26% of all buyers.
37
38 • The 2016 median household income of buyers increased to $86,100. The median
39 income was $72,000 among first-time buyers, and $98,000 among repeat buyers.
40 Married repeat buyers have the highest income among all buyers at $107,000.
41 Increased median household income could suggest that stricter financing and rising
42 home prices may be forcing lower income buyers out of the market.
43
44 • For first-time homebuyers, 67% purchased for the desire to own a home of their own.
45 Repeat homebuyers bought for the following reasons: desire for a larger home
46 (14%), job-related relocation (11%), and the desire for a home in a better area (9%).

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1 Characteristics of Homes Purchased

2
3 • 14% of buyers purchased new homes, with 86% purchasing previously owned
4 homes.
5
6 • 34% of new home purchasers bought a new home to avoid renovations or problems
7 with plumbing or electrical.
8
9 • 32% of homebuyers who bought previously owned homes purchased their home for
10 a better price and overall value.
11
12 • The typical home purchased was 1,900 square feet in size, built in 1991, and had
13 three bedrooms and two bathrooms.
14
15 • 83% of homebuyers purchased a detached single-family home.
16
17 • 14% of recent buyers over the age of 50 bought a home in senior-related housing,
18 either for themselves or for a friend or relative.
19
20 • When considering the purchase of a home, heating and cooling costs were at least
21 somewhat important to 84% of buyers.
22
23 The Home Search Process
24
25 • As of 2018, 44% of homebuyers, the first step in the home-buying process was
26 looking online for properties. This number increases exponentially every year.
27
28 • Real estate agents were viewed as a very useful information source by 79% of
29 buyers who used an agent while searching for a home. Online websites were seen
30 as most useful at 86%.
31
32 • The typical homebuyer searched for 10 weeks and viewed 10 homes.
33
34 • Among buyers who used the internet during their home search, 89% of buyers found
35 photos and 85% found detailed information about properties for sale very useful.
36
37 • 60% of recent buyers were very satisfied with their recent home buying process, up
38 from 59% in 2015.
39
40 Home Buying and Real Estate Professionals
41
42 • 88% of buyers purchased their home through a real estate agent or broker; 6%
43 purchased directly from a builder or builder’s agent.
44
45 • 42% of buyers found their agent through a referral from a friend or family member
46 and 11% used an agent they had used before to buy or sell a home.
47
48 • Nearly 70% of recent buyers only interviewed one agent during their home search.
49
50 • 50% of buyers reported what they want most from their real estate agent is to find
51 them the right home to purchase.
52
53 • 88% of buyers would use their agent again or recommend to others.
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1 Financing the Home Purchase

2
3 • 88% of homebuyers financed their recent home purchase.
4
5 • Among those who financed their home purchase, buyers typically financed 90%.
6
7 • The share of first-time buyers who financed their home purchase was 96% compared
8 to 84% of repeat buyers.
9
10 • 13% of homebuyers identified saving for a down payment as the most difficult step in
11 the home buying process.
12
13 • Of buyers who said saving for a down payment was difficult, 49% reported that
14 student loans made saving difficult; 40% cited credit card debt, and 34% cited car
15 loans as also making saving difficult.
16
17 • 82% of buyers reported that they view a home purchase as a good investment.
18
19 BUYER AGREEMENTS
20
21 Showing Agreement
22
23 You may want to consider the use of a Showing Agreement to ensure loyalty from your
24 buyer.
25 In the Forms Section of this book, we provide you with a copy of the Florida Association
26 of REALTORS (FAR) Showing Agreement (Form SA-3x Rev. 10/06).
27
28
29 To obtain the FAR Showing Agreement, please visit the FAR website:
30 www.floridarealtors.org
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45 By using this form, you have your buyer agree that if they purchase any of the homes
46 you showed them, they would purchase them through you. The first time you take them to a
47 showing, list the address of the property in Section 2 of the form and have your buyer sign
48 the form. Then for each subsequent showing, add the address of the property in Section 2.
49 This gives both you and your buyer a clear record of all the properties you shown them. In
50 the event that your buyer breaks the agreement by purchasing one of he listed properties
51 through another broker, they will still owe you the amount stated in the showing agreement.
52 Conversely, if they purchase a property that you did not show them, they owe you nothing.
53 Using this agreement can be extremely effective in assuring buyer loyalty.

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1
2 Exclusive Buyer Brokerage Agreement
3
4 To act as your buyer’s broker and receive compensation from them, it is wise to use the
5 Exclusive Buyer Brokerage Agreement.
6 In the Forms Section of this book, we provide you with a copy of the Florida Association
7 of REALTORS Exclusive Buyer Brokerage Agreement (Form EBBA-6tn Rev. 11/16).
8
9 To obtain the FAR Exclusive Buyer Brokerage Agreement,
10 please visit the FAR website:
11 www.floridarealtors.org
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25 This agreement has more advantages for you than the Showing Agreement. It
26 establishes an exclusive representation with a buyer, provides for a retainer fee, and
27 contains a limitation of your liability with respect to tax, legal, environmental, engineering, or
28 other specialized advice. This agreement also includes a protection period whereby the
29 clients will still owe you compensation within so many days after the agreement terminates if
30 they purchase a property that you introduced them to during the agreement term.
31
32 SHOWING PROPERTY
33
34 Showing property is a manner of personal style. However, one thing is for sure, your job
35 is not to walk through the property with the buyer pointing out that, this is the kitchen, this is
36 the bedroom, and this is the bathroom. The buyer can see that. Your job is to present the
37 property in the very best way possible and point out all of the unique features and upgrades
38 that make the property special.
39 Remember, it’s important to eliminate any objections your buyer might have. For this
40 reason, you must pay attention to the buyer’s reactions, facial expressions, and the
41 questions they ask. This gives you the opportunity to overcome any of their objections.
42 However, to put it simply, if they don't like a property, go on to the next one. You will not be
43 able to talk a buyer into buying a home they don't like.
44 You will probably be best served by showing what the buyers consider to be the best
45 buy or best house first. A buyer will be more motivated by the fear of losing the first house
46 you show them than they will be by gaining the last.
47 When setting your appointments, keep the following in mind:
48
49 • Give the listing agent plenty of time to return your call and confirm the showing
50 appointment.

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1 • If a listing agent wants to meet you at the property, use the window method of
2 scheduling. Give the listing agent a 20-minute arrival window. For instance, tell them
3 you will arrive between 10:00 and 10:20 a.m. This will give you both some flexibility
4 and allow for unexpected delays.
5
6 • Be punctual. Don’t get the reputation for being late.
7
8 • Do your homework. Know the properties you are showing but let the listing agent
9 “sell” the property to your buyer. The listing agent probably has more knowledge
10 about the property, but you must verify the information the agent gives to your buyer.
11
12 • After the first showing, ask the buyer if the property meets their needs. If it does not,
13 eliminate it from consideration. Repeat this process until they see a property that
14 meets all of their needs. You can do this by asking, “If this were the only property
15 available, would you buy it?” If they answer, “Yes,” then after the next showing,
16 compare the two by asking, “If these were the only two properties available, which
17 one would you buy?” By using this process of elimination, you narrow the choice to
18 one or two properties.
19
20 • It is strongly recommended that you do not show property to large families. Some
21 parents tend to let their children run amok. Have the children stay at home until your
22 buyer has found the home they want. Then invite the rest of the family to see it
23 before the purchase.
24
25 • Stay with your buyer. Don’t let them wander out of your sight. This is a possible
26 liability issue. You don’t want someone getting injured or have a household item go
27 missing.
28
29 • Always leave the property as you found it, unless
30 otherwise instructed, such as doors locked, lights
31 on or off, air-conditioning on or off, etc.
32
33 • Limit showings to a maximum of five at a time.
34 More than five at one time usually leads to
35 confusion and analysis paralysis.
36
37 • After each showing, when you are in your car and
38 away from the listing agent, get your buyer’s candid
39 opinion of the property. This will enable you to get a
40 clearer picture of what they want.
41
42 Disclosures
43
44 When showing properties to your buyer, there are some property disclosure
45 requirements of which you need to be aware.
46
47 • Seller’s Real Property Disclosure Statement. All sellers and brokers are required
48 to disclose all material defects of the property that are not readily visible to the buyer.
49 Presently under Florida law there is no requirement that the disclosure be in writing
50 as long as it is complete in nature. However, if you give the disclosure verbally, it
51 may contain inherent risk to both the seller and you by being extremely difficult to
52 prove later in case of legal action.

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1 A written Seller’s Real Property Disclosure Statement is preferable for both the
2 seller and you. Check with the listing agent to see if a written disclosure is readily
3 available. If so, it will substantially reduce liability by making full disclosure easier to
4 prove. A snapshot of such a disclosure is shown on the next page.
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24 • Homicide, suicide, or death from natural causes. There is no requirement to
25 disclose murder, death, or suicide on the property. It is not considered a material
26 defect of the property. A cause of action cannot be brought against the seller or the
27 listing agent. Under Florida Statute 689.25, a licensee will not be subject to action for
28 failure to disclose murder, death, or suicide in or on a property.
29
30 • HIV or AIDS Disclosure. You must not disclose if an occupant was infected with
31 HIV or AIDS. It is not considered a material defect.
32
33 MAKING AN OFFER
34
35 When your buyer makes a selection from the properties that you have shown them, it’s
36 time for you to encourage them to make an offer. This, however, can be a frightening
37 concept for them.
38 As you work with them, be aware of their signals so you can determine if the time is right
39 to push or to back off. It might be facial expressions or certain words that alert you to their
40 readiness. Maybe, up until that point, your buyer’s facial expressions were closed or
41 defensive. Gradually or suddenly, their expressions begin to soften and change into those of
42 eagerness or readiness. Sometimes they will ask to go back to a property again and take
43 measuring implements or even a contractor. These are sure signs that they are ready to
44 take action. Once you see these signals, be prepared to address objections.
45
46 Buyer Objections
47
48 The first thing to do when your buyer has objections to making the offer is to
49 acknowledge their concerns. Don’t attempt to dismiss them; this will create an impression
50 that you are trying to hard sell them. When your buyer has questions about what the seller
51 will do, answer them with question about what your buyer would like to have happen.

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1 Example: Jane, your buyer, asks, “Do you think the seller will come down on the price?”
2 Your response could be, “What would you like to offer?”
3
4 Keep putting the ball back into their court to get them to take ownership of the offer.
5 Actually, last minute objections are good because they are signs that the buyer is ready to
6 submit an offer. The objections signal they need reassurance. Being ready with reasonable
7 answers to their objections will help pave the way to drafting the offer.
8
9 Objections about Price
10
11 Most buyers are going to object to the price and will want to offer a lower price, since
12 buyers typically believe the listing price is set at a level for built-in negotiation.
13 When your buyer objects to a price, ask them what they believe a fair price would be and
14 how they arrived at that price. Most often, they will respond that they just think they should
15 go in at a low price and negotiate up from there.
16 There are a couple of ways to handle your buyer’s objection to the price.
17
18 • Advise them that going in too low might put off the sellers and make them unwilling
19 to negotiate at all. If you think the buyer’s price is so low as to be insulting,
20 encourage them to start higher by suggesting that the comparables for recent sales
21 indicate that the seller’s price is not out of line. Be prepared to show the buyer that
22 by quibbling over price, they stand to lose the home they want and, in the end, the
23 amount they save is not worth the risk of losing it.
24
25 • If your buyer is interested in a particular home and you have spent time with them
26 reviewing its features, you will be aware of the objections they might raise.
27
28 Example: The house that your buyer is interested in has an older roof. Before they
29 raise the objection to the price because of the roof condition, during your discussion
30 of the offer, you could ask, “Would you like to take the roof condition into account
31 when you make an offer?”
32
33 By using this approach, you can address your buyer’s concerns and keep them
34 from turning the objection into a reason for not making an offer.
35
36 Overcoming the Reluctant Buyer
37
38 Buyers sometimes think there is no rush to make an offer. They think the property will
39 wait. This may be true in a down market, but if the home is nice and in a good area, it can
40 turn over in a matter of days after being listed.
41 You need to create a sense of urgency in order to get your buyer to act. You can do it
42 with facts about how long homes in the area stay on the market, how many showings the
43 property has had, and other facts that will point out to your buyer that the home may not be
44 around tomorrow.
45
46 Offer Contract
47
48 When your buyer is ready to make an offer, spend whatever time is necessary to review
49 the purchase offer contract in detail with them. (We discuss how to complete a Residential
50 Purchase and Sale Contract later in this chapter.)
51 Make sure the buyers are involved in filling in all the blanks of the offer contract. Make
52 sure they understand that the offer, if accepted, becomes a binding contract.
53 It is also important that your buyer understands that the seller probably will only
54 negotiate a few points. Once the seller receives the offer, if they only counter on two or three
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1 points, the remainder of the offer will not be renegotiated. Consequently, your buyer should
2 be sure that their offer reflects what they want in every way. There is an outside chance that
3 the seller will sign the purchase agreement the first time the offer is made. The buyer must
4 think that this will happen in order to focus on the contract’s provisions.
5 Your job is to help your buyer prepare an offer that the seller will seriously consider. So
6 what do you do if your buyer wants to write an offer that is very low or one that has too many
7 contingencies? While it is important for you to get the best price and conditions possible for
8 your buyer, it is also important to advise them about how the seller might view their offer.
9 You can play a key role in giving advice to your buyer in the following areas:
10
11 • Pricing. You can do a CMA for the buyer to give them a good idea of the price they
12 should offer.
13
14 • Amount of earnest money and down payment. You can advise the buyer
15 regarding what may be the customary earnest money deposit for a home in their
16 price range and let them know that the earnest money will be credited toward the
17 down payment at closing.
18
19 • Pre-qualification or pre-approval letter. If the buyer can provide a pre-qualification
20 or pre-approval letter from a mortgage loan originator, it strengthens the offer by
21 showing the seller that they are financially qualified to obtain the financing needed to
22 close the transaction. A pre-qualification letter can be easily and quickly obtained by
23 calling a mortgage loan originator or lender and providing some basic financial
24 information. A pre-approval letter involves verification of the information such as
25 employment and source of down payment. A pre-approval letter carries more weight
26 in a close, multiple offer situation.
27
28 • Personal and real property issues. When writing the offer, the buyer can indicate
29 what personal property they want to stay and what real property they want removed.
30
31 • Warranties. You can advise the buyer to ask for any warranties they want the seller
32 to provide, such as a home warranty.
33
34 • Legal description. You must be sure that the legal description of the property is
35 accurate.
36
37 • Closing date. When advising the clients about a closing date, be sure your buyer
38 understands how important it is to take into consideration the seller’s needs as well
39 as their own. For example, a quick closing may be ideal for the seller if the buyer can
40 do it. On the other hand, if the seller needs time to find another home, a later closing
41 might be a better option if the buyer can wait.
42
43 • Contingencies. You should advise your buyer that the more contingencies that are
44 attached to the contract, the less attractive it may be to the seller. Sellers expect
45 financing or inspection contingencies but are usually not happy if an offer is
46 contingent on the buyer’s selling their current property. Some of these things can’t be
47 avoided, but the buyer needs to understand the role that contingencies play in how
48 strong an offer looks to the seller. Common contingencies include:
49
50 o Financing contingency. The offer may be contingent upon the buyer obtaining
51 specific financing from a lending institution. If a loan cannot be obtained, the
52 buyer is not bound by the contract.

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1 o Home inspection contingency. The offer may be contingent upon a satisfactory

2 home inspection within a specified time period; 5-10 days for example. If the
3 home inspection is not satisfactory, the buyer may not be bound by the contract,
4 opening up the opportunity for further negotiation of the contract terms.
5
6 • Addenda/riders. You should advise your buyer regarding the proper addenda and
7 riders to attach to the offer and be sure they understand clearly what each means.
8
9 • Final walk-through. You should strongly advise your buyer about the importance of
10 the final walk-through inspection of the property before closing. You should be with
11 them when they do the walk-through and then advise them of what may need to be
12 addressed before they sign the closing documents. We recommend that you have a
13 copy of the sales contract with you while conducting the walk-through inspection.
14 This way the buyer can verify that all the inclusions that were stated in the contract
15 remain with the property and all repairs have been made. Today, it is common
16 practice to have the buyer sign-off on the walk-through inspection to state in writing
17 that they accept the home in its present condition. Once the buyer moves in, it will be
18 difficult for them to say a particular item stated as an inclusion in the contract isn’t
19 there or that a particular repair wasn’t made.
20
21 CONTRACTS
22
23 Before we discuss any of the Florida-specific contracts, let’s review some general
24 contract information with which you should already be familiar.
25
26 Statute of Frauds [F.S. 725.01]
27
28 The statute of frauds was first enacted in England in 1677. It was intended to provide
29 protection against fraud in the transfer of real property. It requires any contract for the
30 transfer of a right or interest in land to be in writing in order to be enforceable.
31 The statute covers real estate sales contracts, leases of more than one year, and option
32 contracts, as well as deeds and mortgages. In order to be enforceable, all of these types of
33 contracts must be in writing. The statute, however, does not make an oral real estate
34 contract invalid or illegal. Any oral contract that was executed and closed under the
35 expressed terms of the agreement is legal.
36 There are three exceptions under the statute of frauds, which pertain to oral (parol)
37 contracts, at least two of which must be in place in order to make it enforceable. They are:
38
39 • Partial payment
40 • Improvements to the property
41 • Possession of the property by the buyer
42
43 Statute of Limitations
44
45 The statute of limitations establishes time limits for the enforcement of contracts.
46
47 • Written contracts. In the case of written contracts, an action for enforcement must
48 be brought within five years. [F.S. 95.11(2)(b)]
49
50 • Oral contracts. For oral (parol) contracts, an action for enforcement must be
51 brought within four years. [F.S. 95.11(3)(k)]

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1 Essential Elements of a Contract

2
3 The essentials elements of a legal contract are listed below.
4
5 • Lawful subject. In order for a contract to be valid, it must be for a legal purpose. Any
6 contract for an unlawful purpose or adverse to the public welfare is not valid.
7
8 • Agreement. There must be agreement, also referred to as a meeting of the minds,
9 for a contract to be created. In order to arrive at a meeting of the minds, there must
10 be an offer and an acceptance of all terms and conditions of the offer.
11 In real estate, the buyer generates the
12 original offer and the seller receives it. The
13 party who makes the offer is the offeror and
14 the party who receives it is the offeree. If the
15 party who receives the offer makes any
16 changes to the terms and conditions of the
17 offer, it is considered a counter offer and the
18 original offer no longer exists. In the case of
19 a counter offer, the offeree becomes the
20 offeror and the offeror becomes the offeree.
21 This back-and-forth process continues until
22 all terms and conditions of the offer are
23 agreed to by all parties.
24 This meeting of the minds creates the contract. However, without communication
25 the contract does not exist. For this reason, an accepted (executory) contract should
26 be communicated back to the other party as quickly as possible.
27
28 • Consideration. A contract must contain sufficient consideration. Sufficient
29 consideration consists of two types: valuable and good.
30 Valuable consideration means anything of value including money, personal
31 property, or a promise that can be enforced, such as a promissory note.
32 Good consideration, otherwise known as Love and Affection, is anything that
33 cannot be converted to valuable consideration.
34
35 • Competent parties. All parties to the contract must be sane, sober, competent, and
36 of age. If any party is found to be below the legal age of 18, the contract is
37 unenforceable upon that party. In addition, if any party is found to be mentally
38 incompetent, it could void the contract and that party could not be held accountable.
39
40 Purchase and Sale Contracts
41
42 For real estate licensees, writing a contract is one of the most important and difficult
43 services they perform. Yet, it is often taken for granted and performed in a less than efficient
44 manner. Working hard and investing money in your business won’t mean a thing if you can’t
45 write a contract and get that contract to closing.
46 The preparation of a contract for another person is practicing law, so we cannot
47 overstate how important it is to be proficient in the preparation of a sales contract. The
48 responsibility and liability of preparation falls upon you. If the purchase and sale contract is
49 prepared properly, at the time of sale, you will have fewer problems and will be far more
50 likely to get your transaction to closing.

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1 A preprinted contract is only viable when its provisions adequately convey the intent of
2 the parties in any real estate transaction. If the parties have to make substantial changes to
3 the contract to ensure that it conforms to their intent, you should suggest that the parties
4 obtain legal counsel to prepare a custom agreement.
5
6 Forms Programs
7
8 There are numerous forms programs available through various providers. However, all
9 REALTORS in Florida have a state-of-the-art program, which can be accessed at
10 www.FloridaRealtors.org.
11 The forms program allows you to provide clear, precise, and professionally prepared real
12 estate forms. On very rare occasions, you may be forced to write a contract on the hood of
13 your car, but by and large those days are long gone. Today, we prepare all of our real estate
14 forms at the computer and send them via e-mail or fax to all of the interested parties. Not
15 only can you prepare and send all of your real estate forms directly from the forms program,
16 you can also store them to use later or to make revisions if necessary.
17 Using a forms program will ensure that you are accessing the most current, up-to-date
18 contracts and forms.
19
20 Residential Contract for Sale and Purchase
21
22 The Residential Contract for Sale and Purchase
23 is a critical document in real estate. It is essential for
24 you to understand the provisions of the contract and
25 how to complete it. If you make a mistake when filling
26 out a sale and purchase agreement, there could be
27 serious consequences, from losing the commission
28 on the sale, to involvement in a lawsuit brought by
29 one of the parties, to some sort of disciplinary action.
30
31 In the Forms Section of this book, you’ll find the Residential Contract for Sale and
32 Purchase (FloridaRealtors/FloridaBar-5x Rev.6/19), which is approved by the Florida
33 REALTORS and the Florida Bar.
34 The instructions for completing this form are provided on the following pages.

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1 How to Complete the Residential Contract for Sale and Purchase

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26 Line 1: Enter the complete name of the seller(s).
27 Line 2: Enter the complete name of the buyer(s).
28 Line 6: 1. Property Description:
29 Line 7: (a) Enter the complete street address of the property, including city, state, and
30 zip code.
31 Line 8: (b) Enter the name of the county in which the property is located and the property
32 tax ID number.
33 Lines
34 9 - 11: (c) Enter the complete legal description of the property. If you need more space
35 for the legal description, include it on a separate page as an addendum.
36 Lines
37 15 - 19: (d) Personal Property: The items specified in Paragraph 1(d) are included in the
38 purchase, such as the refrigerator, dishwasher, ceiling fan, blinds, etc.
39 Lines
40 20 - 21: Enter any other items that are included in the purchase.
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42 23 - 24: (e) Enter any items that are excluded from the purchase.

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27 Line 26: 2. Purchase Price: Enter the purchase price of the property.
28 Line 27: (a) Enter the amount of the initial deposit to be held in escrow.
29 Line 29: Check the appropriate box to indicate whether the initial deposit check (i)
30 accompanies the offer or (ii) is to be made within a specified number of days
31 after the effective date.
32 Lines
33 32 - 34: Enter the escrow agent's name and contact information.
34 Lines
35 35 - 36: (b) If there will be an additional deposit delivered, enter the number of days after
36 the effective date and the amount of the additional deposit.
37 Line 38: (c) Enter the amount of financing. Express as either a dollar amount ($) or a
38 percentage (%).
39 Line 39: (d) Enter any other relevant information.
40 Line 41: (e) Indicate the amount that will be paid by wire transfer or other collected funds.
41 Line 43: 3. Time for Acceptance of Offer and Counter-Offers; Effective Date:
42 Line 45: (a) Enter the date by which the signed, executed copy of the contract must be
43 delivered to all parties in order for the contract to remain viable.
44 Line 50: 4. Closing Date:
45 Line 52: Enter the closing date.
46 Bottom: Have the buyer(s) and seller(s) initial in the spaces provided at the bottom of
47 each page. (This is not legally required but recommended.)

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30 Line 61: 6. Occupancy and Possession: Review this provision with your buyers so that
31 they understand the seller’s responsibility for removing personal items and
32 delivering keys, garage door openers, etc. The buyer must also clearly
33 understand their risks if they occupy the property before the closing takes place.
34 Line 70: (b) Check if Property is Subject to Lease(s) … Check this box if the property is
35 subject to lease(s) or occupancy after closing.
36 Lines
37 79-80: 7. Assignability: Check the appropriate box to indicate whether the buyer can
38 assign the contract and be released from liability, assign the contract and still be
39 liable, or cannot assign the contract.
40 Line 83: 8. Financing:
41 Line 84: (a) Check this box if the buyer will pay cash or obtain a loan with no financing
42 contingency.
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44 88 - 92: (b) Check the first box if the contract is contingent on financing. Check whether
45 the buyer is seeking a conventional, FHA, VA, or other type of loan. Complete
46 this section with the applicable information about the loan.
47 Line 93: Enter the number of days within which the buyer will apply for the loan.

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16 Line 125: (c) Check this box if the buyer is going to assume the existing mortgage.
17 Line 126: (d) Check this box if the buyer is seeking a purchase money note and mortgage
18 from the seller.
19 Line 129: 9. Closing Costs; Title Insurance; Survey; Home Warranty; Special
20 Assessments:
21 Line 130: (a) Costs to be Paid by Seller: This paragraph lists all of the costs to be paid by
22 the seller. If the seller is to pay for something else, enter it in the “Other” line.
23 Line 136: (i) Enter the amount or percentage the seller will pay for general repair Items.
24 Line 138: (ii) Enter the amount or percentage the seller will pay for wood destroying
25 organisms (WDO) treatment and repairs.
26 Line 140: (iii) Enter the amount or percentage the seller will pay for costs associated with
27 closing out open or expired building permits.
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39 Line 150: (b) Costs to be Paid by Buyer: This paragraph lists all of the costs to be paid by
40 the buyer. If the buyer is to pay for something else, enter it in the “Other” line.
41 Line 159: (c) Title Evidence and Insurance: Enter the number of days prior to closing that
42 the buyer will receive a title commitment. If left blank, then the buyer will receive
43 the title commitment five days prior to closing.

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35 Line 172: (i) Check this box if the seller is to designate the closing agent.
36 Line 176: (ii) Check this box if the buyer is to designate the closing agent.
37 Line 178: (iii) Check this box if the Miami-Dade/Broward Regional Provision applies.
38 Line 182: If it does, enter the amount that the seller is not obligated to pay more than.
39 Line 187: (e) Home Warranty: Check the appropriate box to indicate whether the buyer or
40 the seller will pay for a home warranty or check the N/A box if there will be no
41 home warranty.
42 Line 188: If a home warranty will be provided, enter who will issue the warranty and the
43 maximum cost.
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45 191 - 202: (f) Special Assessments: Check box (a) on line 197 if the seller will pay
46 installments due prior to closing. Check box (b) on line 199 if the seller will pay
47 the assessment(s) in full prior to closing.
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49 204 - 255 10. Disclosures: It’s important to review each of the disclosure items in this
50 paragraph so that your buyer understands which party is responsible for what
51 actions. (Section continues on page 5 through line 255.)

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16 Property Maintenance, Condition, Inspections and Examinations
17 Line 257: 11. Property Maintenance: Although you don’t have to enter information in this
18 section, be sure your buyer understands that it’s the seller's responsibility to
19 maintain the property in its existing condition as of the effective date.
20 Line 260: 12. Property Inspection and Repair:
21 Line 261: (a) Inspection Period: Enter the number of days after the effective date that the
22 buyer has to conduct an inspection. Be sure your buyer understands that they
23 have the right to conduct inspections of the property, but they must deliver any
24 written reports in a timely manner or they will waive the seller’s obligation to
25 make repairs, treat, or otherwise remedy any faulty conditions.
26 Line 269: (b) General Property Inspection and Repair: This section is information only.
27 You must understand the information provided regarding general inspection and
28 property condition that you can explain it clearly to your buyer.
29 Page 6 Property Maintenance, Condition, Inspections, and Examinations continues
30 on page 6 and 7 through line 368.
31 Page 7
32 Line 370: 13. Escrow Agent: This paragraph explains the responsibilities of the closing or
33 escrow agent for collecting and disbursing the funds received in connection with
34 the transaction. (Continues on page 8.)
35 Page 8
36 Line 390: 14. Professional Advice; Broker Liability: This paragraph stresses the
37 importance of the parties obtaining expert advice from qualified professionals and
38 verifying all information they receive about the property. It goes on to state a
39 limited indemnity and hold harmless provision for the broker under certain
40 specified circumstances. It also specifies that the broker does not reside on the
41 property. If this is not the case and it is the broker’s residence, you’ll need to alter this
42 statement. The parties also agree to pay their vendors whether or not the
43 transaction closes.
44 Line 413: 15. Default: This section describes what happens if either the buyer or seller defaults.
45 If a buyer defaults, any part of the deposit that was to be paid to the listing broker will
46 be divided equally between the listing and cooperating brokers. However, the
47 cooperating broker's portion cannot exceed the commission they would have
48 received had the sale occurred. If a seller defaults, the buyer is entitled to the
49 return of any deposit and may seek to recover damages or sue for specific
50 performance.

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1 Line 428: 16. Dispute Resolution: If there is a dispute over a deposit, the buyer and seller will
2 have ten days after the date of conflicting demands over the deposit are made to
3 resolve the dispute. If that fails, they will mediate pursuant to the Florida rules for
4 certified and court-appointed mediators with a mediator who is certified or has real
5 estate industry experience. The buyer and seller must mediate all non-deposit
6 disputes in the same manner as deposit disputes except there is no ten-day period
7 in which to resolve these disputes before submitting the dispute to mediation.
8 Litigation will resolve all disputes not resolved by mediation.
9 Line 440: 17. Attorney's Fees; Costs: The parties will split any mediator's fee, but each
10 will pay their own costs, expenses, and attorney's fees in mediation. In the case
11 of litigation, the prevailing party will be entitled to attorney's fees paid by the non-
12 prevailing party. (Continues on page 9.)
13 Page 9 Standards for Real Estate Transactions (“Standards”)
14 Line 445: 18. Standards: What follows is a brief synopsis of the important points to cover
15 in this section.
16 Line 446: A. Title: This states that the title must be delivered to the buyer in the period
17 noted earlier in the contract and discusses the examination timeframe the buyer
18 has. (Section continues on page 9.)
19
20 Line 479: B. Survey: If the survey discloses encroachments or if items specified in
21 Standard A appear on the survey, the buyer must deliver written notice to the
22 seller in a timely manner and those items will constitute title defects. The seller
23 will execute at the buyer’s request an affidavit of “no change” if applicable.
24 Line 487: C. Ingress and Egress: Disclosure regarding the ingress and egress of the
25 property.
26 Line 489: D. Lease Information: The seller will furnish to the buyer copies of lease
27 information including income and expense statements for the preceding 12
28 months within five days after inspection period. If this differs materially from what
29 was represented by the seller, the buyer has five days after receipt to terminate
30 the contract, but no later than five days prior to closing.
31 Page 10 Standards for Real Estate Transactions (“Standards”) (cont’d.)
32 Line 500: E. Liens: The seller will give the buyer an affidavit at closing that states there are
33 no liens on the property and that no repairs or improvements have been made for
34 90 days preceding the closing. If the property was improved or repaired within
35 the 90 days, the seller must provide releases and waivers of construction liens.
36 Line 508: F. Time: All time periods will be computed in calendar days.
37 Line 513: G. Force Majeure: This paragraph allows for the delay of performance of
38 obligations in the event of force majeure for the time the force majeure exists.
39 Force majeure will include natural disasters, some manmade disasters, and
40 causes that are not reasonably within the control of the buyer or seller. If the
41 extension goes 14 days beyond closing, either party can terminate the contract.
42 Line 524: H. Conveyance: The seller must convey a marketable title. Personal property will be
43 transferred via a bill of sale.
44 Line 529: I. Closing Location; Documents; and Procedure: This paragraph states that
45 closing will occur in the county in which the property is located, identifies the
46 documents needed at closing, and states that the disbursements of proceeds
47 and the recording of the deed are subject to the collection of funds.

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1 Line 549: J. Escrow Closing Procedure: This paragraph describes the procedures that
2 will be used if the issued title commitment does not provide for insurance against
3 adverse matters.
4 Page 11 Standards for Real Estate Transactions (“Standards”) (cont’d.)
5 Line 560: K. Prorations; Credits: This paragraph lists all of the items that will be made
6 current and prorated as of the date prior to the closing date and describes how
7 the prorations will be done under certain special conditions. (Section continues
8 on page 11.)
9 Line 577: L. Access to Property to Conduct Appraisals, Inspections, and Walk-
10 Through: This paragraph provides that upon reasonable notice the seller will
11 provide access to and utilities for the property for appraisals, inspections, and the
12 walk-through.
13 Line 580: M. Risk of Loss: This paragraph describes the responsibilities of the seller
14 regarding the cost of restoration for damage or casualty loss to the property
15 before closing and the buyer’s options if that amount of loss exceeds 1.5% of the
16 purchase price.
17 Line 590: N. 1031 Exchange: If either party wants to enter into a like-kind exchange, the
18 other party will cooperate. However, the cooperating party incurs no liability or
19 cost associated with the exchange.
20 Line 595: O. Contract Not Recordable; Persons Bound; Notice; Delivery; Copies;
21 Contract Execution: This contract will not be recorded in any public records.
22 The contract is binding on all parties and all notices must be in writing.
23 Line 604: P. Integration; Modification: This contract contains the full and complete
24 understanding of all parties and no prior agreements are binding. No
25 modifications are valid or binding unless in writing and executed by all parties.
26 Page 12 Standards for Real Estate Transactions (“Standards”) (cont’d.)
27 Line 609: Q. Waiver: Failure to comply with any specific provision of this contract does not
28 constitute waiver of other provisions.
29 Line 612: R. Riders; Addenda; Typewritten or Handwritten Provisions: These shall control
30 all printed provisions of the contract in conflict with them.
31 Line 614: S. Collection or Collected: This paragraph defines the terms “collection” and
32 “collected.”
33 Line 618: T. RESERVED
34 Line 619: U. Applicable Law and Venue: Florida law applies in any interpretation of this
35 contract and any disputes that arise will be resolved in the county in which the
36 property is located.
37 Line 622: V. FIRPTA Tax Withholding: This section addresses foreign investment tax issues.
38 Addenda and Additional Terms
39 Line 649: 19. Addenda: Here is the list of possible items and addenda that could be
40 included in the contract. Any attached addenda become part of the contract.
41 Check the box next to any addenda or rider you are attaching to the contract.
42 Page 13 (This is the last page of the contract.)
43 Lines
44 651 - 667: 20. Additional Terms: List any additional terms that the buyer and seller wish to
45 have as part of the contract that were not covered previously.

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1 Line 668: Counter-Offer/Rejection

2 Line 669: Check this box if the seller counters the buyer’s offer.
3 Line 671: Check this box if the seller rejects the buyer’s offer.
4 Lines
5 680 - 681: These spaces are for the buyer’s signatures and the date they sign the contract.
6 Lines
7 682 - 683: These spaces are for the seller’s signatures and the date they sign the contract.
8 Lines
9 684 - 687: Enter the buyer’s current address on the left and the seller’s current address on the
10 right for purposes of sending notices.
11 Line 688: Broker: This paragraph states that the brokers listed as the listing and cooperating
12 brokers are the only brokers entitled to compensation in this transaction and instructs
13 the closing agent to disburse at closing the full amount of the brokerage fees as
14 specified in a cooperative brokerage agreement or separate brokerage agreement
15 except for any amount already retained by the broker from the escrowed funds.
16 Lines
17 694 - 697: Enter the names of the cooperating and listing sales associate, and the cooperating
18 and listing broker.
19 This completes the instructions for the Residential Contract for Sale and Purchase (Rev.6/19).
20
21 “AS IS” Residential Contract for Sale and Purchase
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36 The “AS IS” Residential Contract for Sale and Purchase is the result of collaboration
37 between the Florida REALTORS and the Florida Bar Association. Due to the downturn in
38 the real estate market in 2005, the marketplace was saturated with distressed properties,
39 such as foreclosures and short sales. (See the Forms Section of this book for a sample of
40 the full contract.)
41 Most lenders today require the use of the FAR BAR “AS IS” contract in the sale of
42 distressed properties. It is also gaining in popularity with real estate professionals in the sale
43 of non-distressed properties when the seller is not willing to pay for needed repairs.
44 Use of the “AS IS” contract does not relieve the seller or the broker of the obligation to
45 disclose any material defects that materially affect the value of the property but are not
46 readily discernible to the buyer.
47 The “AS IS” contract is, essentially, the same as the standard Residential Contract for
48 Sale and Purchase outlined previously. There are, however, some differences.

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1 • In section 9. Closing Costs; Title Insurance; Survey; Home Warranty; Special

2 Assessments, the language regarding the seller’s responsibilities to pay for general
3 repair, wood destroying organisms (WDO), and costs associated with closing out
4 open or expired building permits is not included in the “AS IS” contract.
5
6 • Section 12. Property Inspection; Right to Cancel includes language dealing with
7 the buyer’s right to cancel that is not addressed in the standard contract. In addition,
8 the sections in the standard contract that deal with general property inspection and
9 wood destroying organisms (WDO) are not included in the “AS IS” contract.
10
11 • Section 12(d) Inspection and Close-Out of Building Permits from the standard
12 contract has been rewritten and included in the “AS IS” contract under paragraph
13 12(c) Seller Assistance and Cooperation in Close-Out of Building Permits.
14
15 • Section 12(f) Repair Standards; Assignment of Repair and Treatment Contracts
16 and Warranties in the standard contract was reduced substantially and appears
17 under paragraph 12(d) Assignment of Repair and Treatment Contracts and
18 Warranties of the “AS IS” with the language that pertains only to the assignment of
19 repair and treatment contracts and warranties.
20
21 • Section 18(X) Buyer Waiver of Claims was added to the “AS IS” contract to
22 address the buyer waiver of claims. In essence, this paragraph states that the buyer
23 waives any claims against the seller (or a real estate licensee involved in the
24 transaction) for any defects or damage that may exist at closing or is subsequently
25 discovered.
26
27 Contract for Residential Sale and Purchase
28
29 The Contract for Residential Sale and Purchase is another type of a purchase and sale
30 contract that is available for your use. It is very similar to the contract we outlined previously.
31 (See the Forms Section of this book for a sample of the full contract.)
32
33
34
35
36
37
38
39
40
41
42 Option Contracts
43
44 An option contract is a right to buy a property during a specified period, at a specified
45 price. It is not an obligation to buy the property, as is the case with a sales contract. It is a
46 right that may or may not be exercised. Option contracts are, therefore, unilateral since the
47 party acquiring the right has not promised to buy the property. To acquire this right, a party
48 must pay a definite valuable consideration. This is true because any contract requires that
49 both parties receive some benefit. The definite valuable consideration is given to the owner
50 in lieu of a promise.
51 The right cannot be obtained without some consideration being given. The consideration
52 paid is called option money.

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1 Parties to an Option
2
3 The property owner who gives the right is called the optionor; the party who receives the
4 right is called the optionee. The optionor is the only party who is obligated to do or not to do
5 something.
6
7 Exercising an Option
8
9 The optionee has the legal right and can elect to purchase the property by exercising the
10 option at any time within the specified option period. Once the optionee notifies the optionor
11 of the intention to proceed with the purchase, the option contract becomes a purchase and
12 sale contract and, therefore, becomes binding on both parties.
13
14 Requirements
15
16 Option contracts must contain all of the elements of a contract; otherwise, a court could
17 rule that a contract does not exist.
18 Option contracts must meet the following requirements:
19
20 • In writing. Options are covered by the Statute of Frauds and must be in writing to be
21 enforceable.
22
23 • Price and terms. The option must state the price and terms for the transaction.
24
25 • Length of time. The time period must be specified.
26
27 • Legal description. The contract must contain a full legal description of the property
28 that is the subject of the option.
29
30 • Consideration. The optionee must pay a definite, valuable consideration, which is
31 usually money.
32
33 Only a portion of the option money can be refunded if the option is not exercised;
34 otherwise, a full refund would remove the consideration. An option can provide that all or a
35 portion of the consideration paid by the optionee be applied toward the purchase price if the
36 option is exercised. An option that is not based on a definite valuable consideration is void.
37 [F.S. 475.43]
38
39 CONTRACT NEGOTIATION
40
41 Once you have helped your buyer to prepare an offer, it must be presented to the seller
42 for their consideration as soon as possible. In most cases, the listing agent will actually
43 present the offer to the seller. However, both licensees are involved in the process.
44 When you are the selling agent, take time to go over the entire offer with the listing agent
45 to be sure they understand exactly what the buyer is offering.
46 If the buyer has some special circumstances that you think are important for the seller to
47 know, you might want to ask to accompany them to the presentation meeting with the listing
48 broker. If you are present at the meeting, you can answer any questions the seller may have
49 about the buyer or the offer. If you go to the presentation meeting, you must disclose your
50 agency status to the seller.
51 Once the offer is presented, you can leave the meeting, which allows time for the seller
52 to discuss the offer with the listing broker in confidence. Once the seller decides what they
53 want to do, it will be up to you to communicate the decision to your buyer.

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1 Be sure your buyer understands that once the listing agent presents their offer, the seller
2 can take one of three actions.
3
4 1. Accept the offer exactly as it is written.
5 2. Reject the offer totally.
6 3. Reject the offer and submit a counteroffer to the buyer for their consideration.
7
8 Acceptance or outright rejection of an offer is easy enough to understand. A
9 counteroffer, on the other hand, requires focus and patience to deal with, both on your part
10 as well as on the part of the buyer. It’s important for your buyer to understand that when the
11 seller makes a counteroffer, they are effectively terminating the original offer. The
12 counteroffer becomes a new offer.
13 Florida has a special form to use for counter offers. (An example is shown below.)
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29 Counteroffers can be written by the buyer as well as the seller. Here are some
30 important tips to follow when helping your buyer draft a counteroffer.
31
32 • Don’t exert pressure on your buyer to include something the other party wants.
33 • When changing important terms, rewrite the whole paragraph so it will be clear.
34 • Refer to the clause of the original purchase offer when appropriate.
35 • Don’t make changes just for the sake of change.
36 • Be sure to date and properly attach any supplements.
37 • Make sure the document is signed properly.
38
39 CONTRACT TERMINATION
40
41 In the event that a contract is terminated, you should be able to explain the reason for
42 the termination to your buyer. A contract could be terminated for any of the following
43 reasons:
44
45 • Breach. If any party to a contract fails to perform as agreed, that party is in violation
46 (or breech) of the contract. The injured party may seek legal action.
47
48 • Revocation. Any party to a contract who is legally entitled may terminate the
49 contract.
50
51 • Mutual rescission. The parties to the contract can mutually agree to terminate the
52 contract.

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1 • Lapse of time. A contract should contain a time for performance by all parties. If
2 time for performance is not stated, a reasonable time will be allowed. Only a court
3 can determine what is reasonable.
4
5 • Abandonment. If a party to the contract does not move towards performance or
6 completion of the contract, the other party may terminate the contract.
7
8 • Performance. If all parties perform as agreed under the terms of the contract and
9 meet all obligations, the contract is terminated.
10
11 THE PENDING FILE
12
13 You will create a file for every one of your sales transactions. It is essential that your
14 pending file contain all relevant documents and correspondence. You must keep the file
15 current throughout the entire transaction. All brokers are required to maintain files for at
16 least five years and for at least two years after the end of any litigation, whichever occurs
17 later.
18
19 Pending File Essentials
20
21 The pending file must contain legible copies of all of these documents:
22
23 • Fully executed contract
24 • Seller’s Real Property Disclosure Statement, if any
25 • Agency disclosures
26 • Any other applicable addenda
27
28 As the transaction progresses, you will place these other documents in the file:
29
30 • Written proof of escrow deposits
31 • Condominium documents receipt (if condominium contract)
32 • Inspection report
33 • Inspection contingency release
34 • Loan commitment
35 • Condominium association approval (if condominium contract)
36 • Walk-through acceptance form signed by the buyer
37 • Closing Disclosure
38
39 You will have an abundance of email and/or fax correspondence. Keep all
40 correspondence in order by date. For faxes that you send, write on the cover sheet exactly
41 what you’re sending and after it’s faxed, staple the fax confirmation to the cover sheet and
42 place it into the file. For email, print a hard copy and place it into the file. Also, document any
43 verbal conversations.

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1 SUCCESS WHEN WORKING WITH BUYERS

2
3 Here are some basic principles to help you succeed when working with your buyers.
4
5 • Don’t give more information than necessary.
6 • Learn as much about the other parties as possible.
7 • Understand that the party who appears to have more time (less pressure) usually
8 has an advantage.
9 • Have a plan B (other choice).
10 • Know your buyers’ level of risk.
11 • Don’t represent your buyers out of a deal they want to be in.
12 • Personalize the buyers to other brokers.
13 • Present a prequalification letter.
14 • Discuss comps and market with your buyers.
15 • Discuss closing date, inspections, financing, personal property, and price (last if
16 possible).
17 • Mention other choices and time to respond.
18 • Get agreement on as many terms as possible.
19 • Get a counter offer on any terms not agreed to.
20 • Give guidance to go forward when appropriate.
21
22 Always remember, buyers want to buy, and the sellers want to sell. Your job is to do
23 your very best to make it happen.

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CHAPTER 6 REVIEW QUESTIONS

1. To obtain access to buyers, it is important to have a good inventory,

which allows you to market to other real estate professionals in addition to buyers
themselves.
2. Your of , geographic , and
network are three key areas for finding buyers. An may not
sell the home, but is a good source of qualified buyers.
3. In order to meet the requirement to disclose all material defects of the property that are
not readily visible to the buyer, a written seller’s is
recommended.
4. Under F.S. 689.25, it is not considered to be a material fact or defect if a property was
the site of a or and therefore would need not to be
disclosed to a buyer.
5. The requires any contract for the transfer of a right or
interest in land to be in writing in order to be enforceable.
6. According to the , the time limit for the enforcement of
written contracts is years and for oral contracts is years.
7. A contract is not created until the offer from the is accepted by the
and back to the other party.
8. All parties to a contract must be . If any party is found to be below the age of
, the contract is unenforceable upon that party.
9. The section of the Residential Contract for Sale
and Purchase lists the items that are included or
excluded in the purchase.
10. Although it is not legally required, it is recommended that you have the buyers and
sellers the bottom of each page of the purchase agreement.
11. The purchase and sale agreement contains a clause, which allows
for delay of performance of obligations in case of natural or manmade disasters not within the
buyers/sellers control.
12. An contract for sale and purchase may be required in the sale of a distressed
property. When using this contract, the seller or broker remain obligated to .
13. An contract provides the with the right to purchase a
property during a specified timeframe at a specified price from the . It is a
contract in that it is not an obligation to buy the property; the right may or
may not be exercised. To exercise the right, definite must be paid.
14. If a party to the contract does not move forward towards performance or completion of
the contract, the other party may terminate the contract due to .
15. All brokers are required to maintain a pending file on every transaction for at least
years and for at least years after the end of any litigation, whichever
occurs later.

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CHAPTER 6 PRACTICE EXAM

1. Which of the following is NOT one of 5. What document does a broker use
the main objectives for conducting an when seeking a paid commission
initial buyer interview? from a buyer?
a. Qualifying the buyer a. Broker Buyer Agreement
b. Obtain the buyer’s loyalty b. Buyer Agent Agreement
c. Obtain a signed Showing Agreement c. Exclusive Buyer Brokerage
d. Explain the process and your Agreement
services d. Broker Buyer Contract

2. Which of the following actions would 6. What is the suggested number of

NOT be advisable when assisting a properties to be shown during one
buyer in the preparation of an offer? appointment?
a. Discourage a final walk-through a. 5 maximum
inspection to avoid last minute b. 8 to 10
contract issues. c. 3 maximum
b. Prepare a CMA for use in discussing d. 9
price.
c. Discuss the advantages of providing 7. What should you do when showing a
a pre-qualification or pre-approval property to a buyer?
letter. a. Encourage the buyer to explore the
d. Discuss the pros and cons of home on their own.
attaching contingencies. b. Be familiar with the property in
advance to be able to point out any
3. Working with unqualified buyers is a unique features or upgrades.
waste of your time. Upon an initial c. Encourage the entire family,
phone inquiry by a potential buyer, including any children, to participate
which action would NOT generally be in the showing.
recommended? d. Avoid having the listing agent show
a. Obtain the name and phone number the property to your buyer.
early in the conversation.
b. Schedule a face-to-face meeting 8. When a counter offer is made, what is
immediately. the status of the original offer?
c. Ask questions to determine the a. The original offer is terminated.
prospect’s needs and motivation. b. The original offer is still in force.
d. Do a quick search and suggest a c. The original offer becomes a second
specific property or two that would be offer.
interesting to the prospect. d. The original offer becomes a back-up
offer.
4. During the initial contact with a buyer,
what should the licensee determine? 9. A potential buyer may be reluctant to
a. The type of property the buyer is make an offer. Which approach is
interested in LEAST likely to encourage a buyer to
b. The buyer’s price range make an offer?
c. The specific neighborhood the buyer a. Acknowledge the buyer’s concerns.
is interested in b. Be prepared with reasonable
d. The buyer’s motivation answers to objections.
c. Avoid discussing concerns unless
the buyer brings them up.
d. Instill a sense of urgency.

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10. Which is NOT one of the four items 13. Which offer would generally be the
that are essential for a contract to be most desirable to a seller?
legal? a. An offer with a pre-approval letter
a. Lawful subject and no contingencies
b. Witnesses b. An offer with a financing contingency
c. Agreement (or meeting of the minds) and no pre-qualification or pre-
d. Sufficient consideration approval letter
c. An offer with a contingency on the
11. What does “valuable consideration” buyer selling their existing home
refer to in a real estate transaction? d. An offer with a home inspection
a. A seller’s thoughtful evaluation of contingency and home warranty
each offer when presented with requirements
multiple offers
b. Thoughtful and kind behavior on the 14. What is stated in the Statute of
part of the seller towards the buyer Frauds?
c. All credit and debit amounts in the a. An oral contract involved in the
closing statement transfer of real estate is illegal.
d. Anything of value, or a promise of b. A contract involving the transfer of
value that can be enforced, such as real property must be in writing to be
a promissory note enforceable.
c. Actions against written contracts
12. Which reason is NOT an event that must be made within five years.
will terminate a contract? d. Licensees who prepare fraudulent
a. Breach: a party to the contract fails contracts are subject to a fine and
to perform as agreed license revocation.
b. Revocation: any party who is legally
entitled may terminate the contract 15. What is the statute of limitations on a
c. Reconsideration: any party changes parol contract?
their mind about the terms of the a. 2 years
contract b. 3 years
d. Performance: all parties have c. 4 years
performed as agreed and met all d. 60 days
obligations

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 CHAPTER

BASIC RESIDENTIAL
PRODUCT KNOWLEDGE
OVERVIEW Real estate licensees need to have a basic understanding of the
various systems and components of residential products. This
product knowledge is key for the preparation of accurate property
descriptions for listing profile sheets and advertising. The knowledge
is also required in order to assist customers with material defect
disclosures and inspection reports. If you provide inaccurate or
misleading information to your buyers, they may make inappropriate
and costly decisions. Therefore, it is wise for you, the real estate
professional, to have a basic knowledge of the residential products
you sell.
This chapter provides you with an overview of residential property
components, such as lot configurations, roof types, insulation, and
heating, ventilation, and air-conditioning systems (HVAC). It also
provides a brief synopsis of the construction industry regulations
including building codes and zoning ordinances.

OBJECTIVES After completing this chapter, you should be able to do all of the
following:

• Distinguish among different types of lots

• Describe basic substructure and superstructure elements of a
building
• Distinguish among different types of roof styles, door, and
window types
• Discuss insulation rating and the various types of insulation
• Describe the plumbing, HVAC, and electrical systems of a
residence
• Understand how building codes regulate residential
construction

1 INTRODUCTION
2
3 Although real estate licensees are not expected to be experts in building construction or
4 inspection, they are expected to have a basic knowledge and understanding of the various
5 systems and components within a home.
6 In the 1985, Johnson v. Davis case, the court specifically ruled that when a seller of a
7 home knows of facts that materially affect the value of the property, are not readily
8 observable, and are not known to the buyer, the seller has a duty to disclose them. Later
9 court decisions affirmed that this obligation also passes to the licensee.
10 As a result, most licensees will have a seller sign a real property disclosure form that
11 outlines any existing defects or problems with the property. If the form is used correctly, the
12 licensee acts simply as an intermediary between the seller and potential buyers by
13 supplying them with the seller’s disclosure form, but not offering any additional opinions or
14 suggestions.
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1 Questions often arise as to whether this form exonerates the licensee from liability. As
2 with many questions, the answer is “yes…but…” For instance, is the licensee exonerated if
3 they notice water stains around windows or on the ceiling that were not disclosed by the
4 seller on the form? Is the licensee exonerated if, after discussing a particular issue with their
5 seller, they advise the seller not to disclose it on the form? These are examples of situations
6 where licensees may create liability for themselves by either failing to act or acting
7 inappropriately.
8 In regards to home construction and home inspection, some licensees take the position
9 that they do not want to know anything, because if they do, they create liability for
10 themselves. While that position may apply when giving unqualified opinions, the opposite
11 may also hold true. If a court were to look at a situation and determine that a licensee should
12 have known there was a problem, the court could rule that the licensee acted in a negligent
13 manner.
14 To avoid these types of situations, most licensees recommend to their buyers that they
15 obtain a home inspection, with a contingency in the contract if the inspection turns up
16 significant undisclosed problems. However, it is the buyer’s decision whether they want the
17 inspection or not. The buyer typically pays for the inspection. It is recommended that
18 licensees provide several home inspector recommendations to their buyers and document
19 the fact that the recommendations were given. Keeping good records regarding this issue
20 may help licensees later if the buyer has a problem with the property and claims that the
21 licensee never mentioned an inspection.
22 The remainder of this chapter outlines various components of construction. These are
23 intended as a very basic overview.
24
25 LOT CONFIGURATION
26
27 The size and shape of a site, as well as
28 applicable zoning and building codes, has
29 much to do with for what it can be used. A
30 site that is either square or rectangular is less
31 expensive to develop than one that is
32 irregular in shape. The shape may also limit
33 the type or design of the structure that can be
34 placed on it. Soil conditions, drainage, and
35 topography are also important. Any and all of
36 these factors can affect the value of the site
37 in the market.
38 There are several types of lot
39 configurations, some of which are illustrated
40 here.
41 Real estate licensees should be aware of
42 the advantages and disadvantages of the various types of lots since they can substantially
43 affect the value of the property. The types of lots are defined below.
44
45 • Interior lot. An interior lot is bounded on each side by another lot.
46
47 • Corner lot. A corner lot is bounded by streets on two adjacent sides. Corner lots
48 have both advantages and disadvantages in residential neighborhoods.
49 A corner lot provides more flexibility in building design as driveways can be
50 located on the side street. More light and air reach the improvements as neighboring
51 homes are spaced at a greater distance than is the case with interior lots.
52 Since there are streets on two sides of a corner lot, two building setbacks are
53 usually required. This requires the site to be larger than an interior lot in the same

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1 neighborhood to accommodate the double setbacks needed to obtain permission to

2 build. An owner of a corner lot may face two paving assessments when streets need
3 to be resurfaced or sidewalks are replaced or repaired. Other disadvantages include
4 less privacy, greater security concerns, and potentially more traffic noise.
5
6 • Cul-de-sac lot. A cul-de-sac lot sits at the end of a street containing a circular
7 turnaround. Cul-de-sac lots are irregularly shaped with front yards that are generally
8 quite small, as most of the open land area is to the rear of the lot. This type of lot
9 offers the advantage of little street traffic and has great appeal to families with small
10 children. Their spacious backyard areas usually provide ample room for swimming
11 pools and other improvements. The disadvantage of this lot configuration is a lack of
12 available parking area.
13
14 • T lot. A T lot is located at the end of a T-intersection. A T lot may be less desirable
15 due to car headlights shining into the home.
16
17 • Flag lot. Access to the main part of a flag lot is over a narrow road or driveway.
18 Improvements are located to the rear of the property.
19
20 • Key lot. A key lot is a long, skinny lot, often bounded by a many as five or six other
21 lots. A key lot gets its name from its resemblance to a key, with the multiple adjacent
22 lots forming the teeth on the key.
23
24 Flag lots and key lots may not conform to current building codes, as codes frequently
25 specify street or road frontage at minimum widths and width at the building line. If the
26 improvements do not meet current code requirements, this fact should be brought to the
27 attention of potential buyers.
28
29 SUBSTRUCTURE AND SUPERSTRUCTURE
30
31 Substructure
32
33 The substructure is located below grade and serves as a platform that supports the
34 weight of the entire building. Soil test borings are made to determine the character of the
35 subsoil and its ability to support the weight of the proposed building. After the boring tests
36 have established the load-bearing capacity of the soil, a decision is made as to the type of
37 foundation that is to serve as the substructure. Grading and clearing are then performed to
38 ready the site for construction. The lot is staked out to show the location of the proposed
39 improvements.
40 The basic foundation types are crawl space, slab, and slab-on-grade. These types are
41 defined below.
42
43 • Crawl space foundations. Crawl space
44 foundations are constructed with the
45 living area elevated above the ground,
46 often on cement blocks. This facilitates
47 access to plumbing and electrical
48 service for repair and replacement of
49 components. Air circulation under the
50 living area also assists in cooling the
51 home. Elevated construction limits the access of many types of pests, such as
52 rodents and subterranean termites into the living are.
53

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1 • Slab foundations. Slab foundations may be either slab-on-grade or matt and raft.
2 Matt and raft foundations are used on unstable soil. The foundation is made of
3 poured concrete and reinforced with steel rods, which are placed at right angles
4 within the cement. This type of foundation essentially floats on the top of the soil.
5
6 • Slab-on-grade foundations. Slab-on-grade foundations are also made of poured
7 concrete, which is reinforced with steel rods at right angles. This is the most
8 economical type of foundation. This type of foundation is often placed on footers,
9 which are designed to prevent excessive settling or movement of the structure. A
10 trench is dug around the perimeter of the construction site down to undisturbed
11 earth, which is filled with concrete to form the footer.
12
13 Older homes in Florida made use of crawl spaces; however, slab foundations are most
14 often selected today, with few basements. Excavation of the site is made to accommodate
15 the type of foundation selected.
16 Before the concrete is poured to create the slab, utilities are brought to the site and
17 stubbed in place. The soil is treated for termite control, a plastic vapor barrier and a mesh of
18 steel rods is placed on the ground. Wooden forms are placed on the ground around the
19 perimeter and concrete is poured to form the slab. The slab may be poured simultaneously
20 with the concrete poured into the trenches to form the footers. This is called a monolithic
21 pour. This method forms the slab and footers as a single unit which creates a stronger
22 system. This process is less expensive than two separate pours. Most slab-on-grade
23 construction utilizes a monolithic pour.
24
25 Superstructure
26
27 The superstructure is aboveground, sits atop, and is attached to, the substructure. It is
28 the load-bearing frame or skeleton of the building. All exterior and interior walls, doors,
29 windows, roofing, floors, and ceilings are attached to the frame, which can be constructed of
30 masonry, wood, or a combination of materials.
31
32 • Wood framing. Wood framing is used in Florida to some extent. Some wood-frame
33 homes have an exterior veneer of brick or stucco. Wood offers both advantages and
34 disadvantages. It is a much better insulator than masonry, which results in lower
35 heating and cooling costs. The disadvantage, particularly in southern climates, is the
36 potential of termite infestation and decay from other types of wood-destroying
37 organisms. Pressure-treated wood is mandatory for exterior use to limit damage from
38 such infestation, and is required by most building codes.
39 The basic types of wood frame construction are platform, balloon, and post and
40 beam (sometimes referred to as plank and beam). These types are outlined below.
41
42 o Platform construction. Platform construction is the most common type of
43 wood frame construction. One story of the building is constructed at a time.
44 Studs are attached to a sill plate, which is anchored to the foundation. Studs
45 are cut to ceiling height and secured with plates, which are placed across the
46 top to hold the wall studs in place. If a second floor is added, additional studs
47 are cut for the second floor and held in place by plates. Trusses are attached
48 to the plates to form the roof structure.
49
50 o Balloon framing. Balloon framing was originally used in colonial barns and
51 older homes with stone or brick exteriors. Balloon framing uses a single stud,
52 which runs from the sill to the roofline. The studs are notched at the second-
53 floor level, and a ledger board is used to attach joists that are nailed to the
54 studs. Although many homes were constructed by using this type of framing,
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1 it is seldom used today. The long studs cost a great deal and are labor-
2 intensive to install. Many building codes prohibit their use, as they offer poor
3 resistance to the spread of fire.
4 o Plank and beam (post and beam) framing. Plank and beam framing
5 features exposed-beam ceilings. This was made popular in the 1970s and
6 1980s by homes featuring a great room design. Great room designs combine
7 living, dining, and kitchen areas into one large, open space. They are
8 commonly used in resort and vacation homes as well. From the interior of the
9 home, the planks that form the roof are visible, as are the beams that support
10 them. The framing members used in this type of construction are much larger
11 and heavier than those used in other framing systems are. The ceiling beams
12 are supported on posts, which are built into the exterior walls, often as much
13 as eight feet apart.
14
15 • Masonry. Masonry is the more commonly used
16 framing system in Florida. Exterior walls are made
17 entirely of concrete blocks, which serve as part of
18 the framing system. Walls are given additional
19 strength by the use of interior steel or wood studs
20 and metal wall ties or masonry headers, providing
21 a stronger structure than wood framing. Hollow
22 sections within the masonry blocks may be filled
23 with insulating material or cement reinforced with
24 metal rods. Exterior surfaces may be sealed and
25 painted or covered with a stucco finish or brick veneer. Stone is sometimes used as
26 a decorative front.
27 Small cracks are common in cement block buildings. It becomes a problem when
28 separation of the surfaces occurs. Moisture can enter the building, causing possible
29 deterioration of wall studs, sill plates, and interior wall surfaces. Mold can form inside
30 the walls, which can lead to foul odors and potential health hazards. In addition, of
31 course, large cracks may indicate a serious structural or foundation problem.
32 Small masonry wall cracks due to settling are not usually indicative of a problem.
33 However, large open cracks on the exterior walls should be noted. Cracks that run
34 outward at an angle from either the top or bottom of window frames could indicate a
35 foundation problem.
36 Since most of the substructure is below the surface, it is not possible to make a
37 meaningful inspection. However, there are certain signs that may indicate a
38 structural problem, such as cracks or bulges in concrete floors, or crumbling or
39 cracks in the wall surfaces.

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1 TYPES OF ROOFS
2
3 The more common types of residential roof styles are shown in the following descriptions
4 and photos.
5
6 • Gable roofs are quite common but have one
7 serious deficiency. In heavy winds, such as a
8 tornado or hurricane, wind can catch the
9 underside of the gable and lift the roof off the
10 house. Building codes require such roofs to
11 have substantial anchoring to prevent such
12 occurrences.
13
14
15
16 • Hip roofs avoid the problem of the roof being
17 lifted, since the gable eaves are replaced with
18 sloping surfaces. This makes hip roofs far
19 stronger. Many builders are opting to use hip
20 roofs since the cost, under current building
21 code, is less than the amount it would cost to
22 reinforce gables.
23
24
25
26
27
28 • Mansard roofs are not as popular as the other
29 roof styles. Mansard roofs are a type of hip roof
30 where each side is double-sloped, the lower
31 slope being much steeper than the one above it.
32 The upper slope is not normally visible from the
33 ground. This section of the roof is subject to a
34 shortened life, as is the case with any flat roof.
35 The angle of the upper slope must provide
36 adequate drainage for the roof to have any
37 reasonable utility.
38
39
40
41
42
43 • Gambrel roofs are an adaptation of the style
44 used on barns. A gambrel roof is similar to a
45 gable roof, except that each side is cut and
46 raised to create four flat surfaces instead of two.
47 In the construction of barns, raising the center of
48 each side of the roof creates extra space for
49 storage of hay and grain. In residential use, it
50 allows more headroom and greater utility in the
51 upper story.
52
53

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1 • Shed roofs may be used to create an aesthetic

2 appearance, as can be seen in the illustration,
3 but, more often than not, are used on porches
4 and garages to allow drainage.
5
6
7
8
9
10 • Flat roofs are more commonly used for
11 detached garages, screened porches, room
12 additions, and nonresidential buildings. Flat
13 roofs are susceptible to wear from standing
14 water.
15 Flat roofs and built-up roofs will lose much
16 of the gravel from the forces of wind and rain,
17 and the asphalt will begin to show signs of
18 cracking or bubbling. This type of roof must be
19 repaired or replaced more frequently than other types of roofs.
20
21 • Saltbox roofs were used on some colonial
22 houses. A saltbox combines a gable roof over
23 the main living area with a shed roof over the
24 rear portion of the house. The rear section was
25 originally a separate room used to cure and
26 store meat before mechanical refrigeration was
27 invented. Salt was used in the curing process,
28 thus the name. This construction technique
29 survived colonial times and is still used today.
30
31
32
33 • Dormers are projections from the surface of a
34 gable or hip roof which allow light and air into
35 finished upstairs rooms and provide additional head
36 room. Dormers may be constructed with either a
37 gable or a shed roof and are common on Cape Cod
38 homes.
39
40
41
42
43
44 Roof framing must be strong enough to support itself plus the weight of the roofing and
45 finishing materials. It must also be engineered to withstand the forces of wind and rain.
46 Different roof styles require different types of framing. For example, tile is much heavier than
47 shingles; therefore, the framing must be much stronger to support a tile roof.
48 Roof trusses are covered with sheathing, sheathing paper, and a finishing material. All
49 vents, chimneys, and valleys must be properly sealed with metal flashings to prevent
50 leakage. Finishing materials include asphalt shingles, wood shakes, slate, metal, and tile.
51 Some lower-priced properties and flat roofs have been constructed with built-up roofs.
52 These are constructed by applying hot asphalt or roofing compound over the sheathing
53 paper and topping it with fine gravel to absorb and dissipate heat.

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1 Roof surfaces must have sufficient slope to allow runoff of rainwater, which will assist in
2 keeping the roof clean and extend its life. As mentioned earlier, flat roofs and decks are
3 especially susceptible to wear from standing water. Water 3/8 inch deep over a 40’ x 60’
4 surface weighs 3.3 tons. Some mansard roofs have been constructed with inadequate
5 drainage as well. Moisture condenses on roof surfaces during cooler night temperatures and
6 heats up by the daytime sun. Roof temperatures can exceed 200 degrees during the day.
7 This repeated warming and cooling eventually causes roofing materials to deteriorate.
8 Attic areas should be vented to allow air circulation. This is often accomplished by
9 installing vented material in the soffits and gable vents or ridge vents along the peak of the
10 roof. Air or wind-driven turbines and thermostatically controlled power vents can be used to
11 increase circulation. Without air circulation, attics can become extremely hot, thereby
12 increasing air-conditioning costs.
13 Most types of roof cover will have to be replaced several times during the life of a
14 building. Some deterioration is usually visible over time. Asphalt shingles tend to curl at the
15 edges when they approach the end of their life. New shingles can be placed over the
16 existing ones without the necessity of a tear-off. However, most codes will only allow two
17 layers without removal and replacement.
18
19 DOORS AND WINDOWS
20
21 The type of doors and windows in a home is an indicator of overall quality. Careful
22 observation of these components can assist licensees in estimating the value of a property.
23
24 Doors
25
26 Exterior doors should be made of solid wood, metal, or glass.
27 Heavier, most intricate doors are an indication of higher cost, and
28 will generally not be found on homes of low-quality construction.
29 Interior doors are most frequently hollow-core wood, although
30 some glass is used. Older homes may be found to have solid
31 wood doors throughout.
32 Hollow-core doors should not be used for exterior installation
33 and are prohibited from such use by most building codes. The
34 door leading from the living area to the garage should be solid,
35 rather than hollow-core, for added fire protection.
36
37 Windows
38
39 Windows have a significant impact on the cost of heating and air-conditioning. Proper
40 installation includes sealing around the frames to prevent air leakage. Insulated glass and
41 multiple glazing are energy-efficiency features found in many homes today. Smaller glass
42 areas provide greater efficiency and provide an element of security.
43 There are several types or styles of windows:
44
45 • Fixed windows do not open, as the name suggests.
46
47 • Sliding windows move side-to-side.

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1 • Single-hung windows have only one pane of glass that is

2 moveable.
3
4 • Double-hung windows have upper and lower panes, both
5 of which may be opened or closed.
6
7 • Awning windows open outward from the bottom and often
8 have a hand crank to open them.
9
10 • Hopper windows open outward from the top and often
11 have a hand crank.
12
13 • Casement windows have two panels that open outward from the center and often
14 have a hand crank.
15
16 • Center pivot windows pivot outward from a center post and may be either hand or
17 crank operated.
18
19 • Jalousie windows, sometimes called Miami windows, have a series of small panes,
20 which run horizontally from the top to the bottom of the window frame. The small
21 panes operate together to open and close, using a crank. This type of window was
22 popular before central air-conditioning became available. They are not energy-
23 efficient and are not often used today for new construction.
24
25 INSULATION
26
27 Like quality doors and windows, the type and quality of insulating material in a home can
28 have a dramatic effect on utility costs. Insulating material is rated according to its R-value.
29 The higher the R-value, the better the insulating characteristics of the material. The R-value
30 is a measure of the ability of the material to resist the flow of heat and is expressed in British
31 thermal units (BTUs) that can be transmitted through one thickness of the material in one
32 hour. Material with an R-value of 30 is a much better insulator than one with a value of 15.
33 Minimum standards for wall and ceiling insulation are established by building codes.
34 Most insulating material is not visible since it is inside walls, ceilings, doors, and in attic
35 spaces. Licensees should not quote the R-value of the insulating material, as it can change
36 over the life of a building due to settling and moisture absorption. Additionally, there is no
37 way to verify the existence or quality of the material used in areas that are not visible.
38 Licensed professionals can be retained to perform an energy-efficiency rating, if desired.
39
40 Types of Insulation
41
42 The different materials used to insulate a property are described below.
43
44 • Foam insulation is piped into wall spaces in liquid form and allowed to dry.
45
46 • Loose-fill is blown into wall cavities and attic spaces.
47
48 • Rigid insulation is used in walls in place of foam or blown-in loose-fill. It comes in
49 sheets and is placed between the studs on the outer walls.
50
51 • Reflective insulation is a type of rigid insulation that has a foil facing that acts to
52 reflect radiated heat. It is used in walls in place of foam or blown-in loose-fill. This
53 material comes in sheets and is placed between the studs on the outer walls.
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1 • Flexible insulation comes in rolls covered with Kraft paper and includes a plastic
2 vapor barrier. This type of material is frequently used in attic areas between the joists
3 instead of loose fill to obtain the moisture protection afforded by the vapor barrier.
4
5 Asbestos-Containing Materials (ACMs)
6
7 Asbestos-containing materials (ACMs) have been used in the past for insulation, exterior
8 siding, roofing shingles, and ceiling and floor tiles. Asbestos is a nonflammable mineral
9 substance widely used in post–World War II construction and up to the 1970s. Although
10 asbestos is a highly efficient insulator, it is a health hazard when particles become airborne
11 (friable).
12 The health issue is related to the product’s degree of friability. Friability refers to how
13 easily fibers are released into the air. ACMs do not generally become friable unless they are
14 disturbed by breaking, cracking, crumbling, drilling, sawing, or pulverizing. Due to health
15 hazards associated with asbestos, building codes prohibit its use in new construction.
16
17 Foam-in-Place Insulation
18
19 Foam-in-place (urea-formaldehyde) insulation was
20 temporarily banned from use in 1982 by the Consumer
21 Products Safety Commission. It was believed that high
22 levels of formaldehyde released into the living space of a
23 home, particularly right after construction, posed a health
24 hazard. Court hearings were held, and no link could be
25 established between the use of this product and the
26 health of residents. This material was used in over
27 500,000 homes, which were built between 1970 and 1982. The ban was lifted in 1983, but
28 publicity generated by court action and the media took its toll. As a result, the use of this
29 material diminished.
30
31 WATER SUPPLY
32
33 Potable water suitable for drinking, cooking, and bathing is obtained either through a
34 community water system or from an approved well. The potable water system consists of a
35 water source, water heater, various fixtures and appliances, and possibly water-conditioning
36 equipment. When connected to a municipal system, a water meter is installed to measure
37 usage.
38 Water wells should periodically be tested for water quality. Wells that have provided
39 good water for years can suddenly become contaminated from underground sources.
40 Ideally, they should be equipped with a chlorinator or other filtration system.
41
42 PLUMBING SYSTEM
43
44 The plumbing system consists of hot and cold water supply lines, water and sewage
45 disposal lines, plumbing fixtures (sinks and toilets), and hot water heaters.
46
47 Supply and Disposal Lines
48
49 Pipes that supply water and carry away waste are not visible, except under sinks. Good-
50 quality piping may last the life of the building; however, some plastic piping has been used
51 that is prone to splitting and breaking, which results in serious damage to the structure.
52 Better-quality water supply lines are usually copper, with waste lines of cast iron or plastic.
53 Plastic pipe comes in several varieties, each having certain characteristics.

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1 • PVC. PVC (poly vinyl chloride) pipe should

2 never be used for hot water distribution, as it
3 becomes soft when exposed to heat.
4
5 • CPVC. CPVC (chlorinated poly vinyl chloride)
6 pipe is acceptable for use with either hot or
7 cold water.
8
9 • PB. PB (polybutylene) pipe, which is usually
10 colored either blue or gray, can also be used
11 for either cold or hot water. A class action lawsuit was filed against the
12 manufacturers of this type of pipe due to repeated claims of leakage around the
13 joints. However, this product is still in use. Examination of the supply lines under the
14 sinks can detect the presence of PB pipe.
15
16 Plumbing Fixtures
17
18 The quality of plumbing fixtures varies widely. A few examples are explained below.
19
20 • Solid porcelain sinks will last indefinitely.
21
22 • Steel sinks with an enamel finish will suffer surface
23 flaking and rusting over time.
24
25 • Stainless steel is often used for kitchen sinks;
26 however, many homeowners have become
27 dissatisfied with stainless steel. They claim it is
28 subject to streaking and shows fingerprints. This
29 problem is easily solved by lightly rubbing with baby
30 oil. Streaks will disappear and the appearance will
31 be restored.
32
33 Faucets vary in quality and longevity as well.
34
35 Hot Water Heaters
36
37 Hot water heaters come in several varieties. Hot water tanks most commonly operate on
38 either electricity or gas. Solar heating is occasionally used as well. Tanks come in different
39 sizes, with most homes equipped with either a 30- or 40-gallon capacity. These tanks build
40 up considerable internal pressure during the heating cycle. If the thermostat fails to shut off
41 the gas flame or electric power source, tank could explode.
42 Tanks are protected from explosion by insertion of a temperature and pressure relief
43 valve in or near the top of the tank. Homeowners who purchase and install their own
44 replacement tanks may not be aware of the importance of this safety device and fail to
45 install a new one when the tank is replaced. A new relief valve is supplied with each tank
46 and should be installed with the tank. The existing valve should be discarded as it can
47 become clogged with mineral deposits over long periods and fail to operate correctly.
48 The tankless water heater is a relatively new concept in heating water. It is sometimes
49 known as an on-demand system. Water is heated only when needed, or on-demand, which
50 results in savings in both energy and space, because no tank is required. The unit is
51 mounted directly to the wall and is approximately the size of a shoebox.

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1 HEATING, VENTILATION, AND AIR-CONDITIONING SYSTEMS (HVAC)

2
3 British Thermal Units (BTUs)
4
5 The capacity of a heating or air-conditioning (AC) system is rated in British thermal units
6 (BTUs). They must be designed based on the number of cubic feet of space, typical weather
7 conditions, and the level of insulation. Systems are commonly sized by using the term tons.
8 One ton equals 12,000 BTUs.
9
10 Heating Systems
11
12 This section pertains to systems that only provide heating. Heating systems operate on
13 warm or hot air, hot water, or steam. Heat may be generated from electricity, gas, or solar
14 energy; natural heat from the subsurface of the earth may also be used. Heat is distributed
15 by convection, radiation, or air forced through duct systems. Fuel may be gas, oil, or
16 electricity. In northern parts of the United States, coal is frequently used.
17 Ducted central heat and air systems designed to both heat and cool are not very
18 efficient. Most such systems in Florida have ductwork in the attic area to carry heated or
19 cooled air to the living area. Since hot air tends to rise, ducts that carry heated air should be
20 placed at a lower level; however, construction techniques used in Florida discourage such
21 placement. Additionally, heated air has greater volume and requires larger ducts than air
22 that has been cooled.
23 Types of heating systems are described below.
24
25 • Radiation systems. In radiation systems, air passes over the heated metal of a
26 radiator, absorbs heat, and circulates in the area of cooler air.
27
28 • Steam systems. Steam systems utilize convection rather than radiation. Steam
29 heating systems are rare in residential use in Florida but may be encountered in
30 older installations in the northern part of the state and in commercial facilities. A
31 boiler heats hot water, which is distributed through pipes to metal radiators located in
32 each room. The boiler is thermostatically controlled. Later systems use zone controls
33 to direct heat to specified areas, rather than throughout the system.
34
35 • In-wall gas heater. In-wall gas heaters were often used in older
36 Florida homes. This type of system is fueled by bottled gas.
37 Heaters were installed on inside walls within the living area.
38 Ducts were necessary to carry fumes from inside the home.
39 Poor ducting could cause serious health problems and even
40 death. This type of system predated the use of radiant or central
41 heat systems. Some, surprisingly, are still in use.
42
43 • Radiant ceiling heat. Radiant ceiling heat was commonly used
44 in the 1960s and early 1970s. A system of wires is imbedded in
45 the plaster ceiling of each room and equipped with a separate wall thermostat. The
46 wire acts much like a large toaster. As was mentioned earlier, hot air tends to rise.
47 With the heat being generated from the ceiling, these systems are not very efficient.
48 Repair of a defective system generally means tearing out the ceiling to replace the
49 wire that serves as a heater, a costly and inconvenient task. The elements take
50 some time to heat, so response to need is quite slow. On the plus side, they are
51 silent and do not depend on forced airflow so use no fans to circulate heated air.
52 Many such systems are still in use.

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1 Another type of radiant heating system utilizes a series of copper pipes buried in
2 the concrete slab. A boiler that is thermostatically controlled operates a circulating
3 pump that moves heated water through the series of pipes in the floor. Boilers are
4 usually fueled with gas. These systems are not popular due to the high cost of repair
5 and initial expense of installation. They are, however, efficient in that heat from under
6 the floor surface rises throughout the living space without the use of fans, providing
7 quiet operation and an even distribution of heat. Like radiant ceiling heat, these
8 systems tend to take a while to respond to need, as the water must first heat the
9 cement slab before radiating into the living space.
10
11 Ventilation
12
13 The most fundamental ventilation system is, of course, windows. Fans may be used to
14 increase airflow. Current construction methods have attempted to create more and more
15 energy-efficient buildings. In the process, buildings now do not allow for much exchange of
16 air between the inside of the building and the outside; therefore, air is trapped in the
17 building. Inside air quality can diminish to the point of becoming a health hazard. Studies
18 have indicated that indoor air may be five times more polluted than outdoor air. Carbon
19 monoxide, carbon dioxide, formaldehyde, and other gases can accumulate in the living
20 space unless the air is exchanged with clean, outdoor air.
21
22 Air-Conditioning Systems
23
24 This section pertains to systems that only provide cooling. Central air-conditioning
25 systems operate by circulating liquid refrigerant, usually Freon, which is under pressure
26 through copper tubing to an evaporator, generally located in the attic area in Florida homes.
27 The liquid refrigerant is allowed to expand rapidly into a copper tube formed in a coiled, or
28 serpentine, fashion. Tin fins are attached to tubing at right angles much like the radiator of
29 an automobile. This rapid release of liquid under pressure causes the liquid to turn to a gas.
30 This sudden expansion causes the temperature of the refrigerant to drop dramatically. By
31 pumping the cool gas through these tubes and blowing air over them, the air temperature is
32 reduced as the heat is removed. The cool air is blown through ducts to the living area.
33 The heated gas is pumped by a compressor, which is located outside of the home,
34 through a condenser. Air is passed over the coils of the condenser by a fan, thereby
35 removing the heat absorbed when it expands in the evaporator. Condensers also look much
36 like an automobile radiator. The cooler gas is compressed back into a liquid and stored in a
37 reservoir until needed for additional cooling.
38 Air-conditioning systems have filters installed in the air ducts to collect dust and prevent
39 it from being pulled into the evaporator. Should a homeowner remove the filters, dust and
40 dirt will eventually clog the fins of the evaporator and cooling will be reduced or even
41 stopped. Dirty filters reduce airflow and add substantially to the cost of electricity needed to
42 operate the system. Most filters must be discarded and replaced after use. Some filters are
43 designed to be washed and reused.
44 Cool air resulting from operation of an air-conditioning system absorbs moisture from the
45 air in the living space of the home. This moisture collects on the evaporator and drains to
46 the outside of the home. This condensation can be seen running from plastic tubing near the
47 outside unit. The drain line in the evaporator compartment can become clogged with algae.
48 When this happens, the drain pan in the attic will overflow, thereby allowing water to come
49 through the ceiling, causing costly repairs. Periodic technical inspection should be
50 performed to see that the system is running correctly, the evaporator is clean, and no algae
51 buildup is present in the drain pan. Care should be taken to see that the outside unit is not
52 blocked by tall weeds or shrubs. Airflow can be diminished, which causes reduced efficiency
53 or possible harm to the system.

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1 Wall air conditioners are a self-contained system that

2 may be mounted in a window opening or installed
3 permanently on an exterior wall. These units are
4 relatively inexpensive and easily installed, which led to
5 their extensive acceptance and use.
6 In areas of low humidity, cooling can be
7 accomplished by blowing air across wet excelsior or
8 other water-absorbent material. This method is simple,
9 inexpensive, and uses less power than conventional air
10 conditioners. Package units that utilize this method are
11 available for both residential and nonresidential use.
12
13 SYSTEMS THAT PROVIDE HEATING AND COOLING
14
15 Heat Pumps
16
17 A heat pump is a self-contained heating and cooling system. The cooling system
18 operates the same as a conventional air conditioner. To create heat, the flow of the
19 refrigerant is reversed so that heat is transferred rather than created. This is accomplished
20 by installation of a reversing valve in the outside unit that operates off of the thermostat
21 located in the home. When heat is called for, the reversing valve opens to reverse the Freon
22 flow.
23 Heat pumps are more efficient than electric heat. A well-designed system can return as
24 much as three times the amount of heat for each unit of electricity operating in 40-degree
25 outside temperatures. As the temperature drops below 40 degrees, the efficiency of the
26 system drops. However, it never drops below the one-to-one ratio typical of ordinary electric
27 heat.
28 In cold temperatures while operating in the heat mode, ice will form on the outside
29 condenser coils. The ice bank will become an insulator and the system will lose efficiency.
30 To maintain efficiency, a defrost cycle is designed into the system. A timer operates to shut
31 down temporarily the heating cycle and reverse the flow of refrigerant long enough to melt
32 the ice. Vapor may be seen rising from the compressor compartment as the ice melts. It is
33 normal to occasionally see a pool of water at the base of the outside unit, which has been
34 created by melting ice.
35 One disadvantage of heat pumps is that they are slow to respond to the need for heat in
36 extreme temperature conditions. To offset this, most systems that are manufactured today
37 incorporate a heat strip mounted in the evaporator compartment. The heat strip operates
38 from an emergency heat circuit. The compressor is temporarily locked out until the
39 temperature reaches 40 degrees. Once the temperature reaches 40 degrees, the heat strip
40 is turned off and the compressor takes over.
41 To determine whether a home has a heat pump, examine the wall thermostat. If it has an
42 emergency heat setting, the system is equipped with a heat pump. Standard heating and
43 cooling systems do not have this emergency feature.
44 Use caution when attempting to check the operation of a heat pump system. Rapidly
45 turning back and forth from cooling to heating, places unusual pressure against the
46 reversing valve and can create the need for expensive repairs.

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1 Geothermal Systems
2
3 Geothermal systems use the temperature of
4 the subsoil for heating and cooling and are the
5 most efficient and least costly to operate of all
6 heating and cooling systems. These systems do
7 not have an outside unit like typical heat pumps.
8 They derive their efficiency by using constant-
9 temperature water circulated through a ground
10 loop. The temperature below the ground remains
11 constant year-round; between about 70 and 72
12 degrees in Florida. This temperature well exceeds
13 that which is needed to supply heat in the winter
14 and low enough to provide cooling in the summer.
15 The unique feature of these systems is the ground loop. Several lengths of high-density
16 polyethylene pipe (which will not rust, degrade, corrode, or disintegrate in the earth) are
17 installed either in a horizontal loop underground or in vertical boreholes so the loop stands
18 upright beneath the surface. The loop is filled with water and sealed. A pump circulates the
19 water. Once the ground loop is installed, it can virtually be forgotten. Horizontal loops are
20 less expensive to install but require more land area.
21 Water is circulated through a geothermal unit inside the home. Much like typical heat
22 pumps, geothermal units employ the flow of refrigerant through a closed loop to boost the
23 heating and cooling capacity of the groundwater. Two heat exchangers and a condenser are
24 used to create a hot zone for winter and a cold zone for summer cooling. Since this system
25 is entirely within the home, there is no exposure to outside elements and extreme
26 temperature changes; this provides an extended life for the system compared to typical heat
27 pumps.
28 All heating and air-conditioning systems employ a natural law: heat always travels to
29 cold. Since the temperature beneath the ground is a constant, warm water circulated from
30 the home in summer will be cooled and cool water in winter will be heated.
31 Newer geothermal systems incorporate a specially designed hot water tank that uses
32 water, which returns to the ground loop to assist in heating water for domestic use; in
33 essence, it provides free hot water. This reduces the use of fuel needed to heat the water in
34 winter months as well.
35 Geothermal units offer several advantages over typical heat pumps. They have a longer
36 life expectancy and cost less to operate. There is quick response to the call for temperature
37 change in the living area. Air coming from the ducts is either warm or cool instantly, thus
38 overcoming one of the shortcomings of typical systems.
39 The disadvantage is a high initial cost of installation, which is offset within a few years by
40 lower operating costs, resulting in a lower overall cost over the lifetime of the system
41 compared to other HVAC systems.
42
43 ELECTRICAL SYSTEM
44
45 Electrically operated hot water tanks, refrigerators, and heating and air-conditioning
46 systems consume the majority of the power used in the home.
47 Electricity is the nerve center that drives most of our modern appliances. It is a valuable
48 tool but has the potential to be a serious safety hazard. A basic understanding of the
49 electrical system of a home can both inform and protect.
50 Electricity is the flow of electrons. It will flow through most any material, but for it to be
51 useful, it must be directed and controlled. The use of metal wire provides a path for
52 electricity to flow to specific places, such as appliances and electric motors. This pathway is
53 called a conductor. One may think of a conductor as being similar to a water pipe. Only so

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1 much can flow through in a given period. Larger wire is used where a large quantity of
2 electric power is required.
3 Attempting to force too much electricity through too small a wire causes the wire to heat,
4 which can lead to a hazardous situation. Electric wire is rated according to wire size; the
5 larger the number the lower the size wire. For example, a number-10 wire would be larger
6 than a number-18 wire.
7
8 Conductors
9
10 Copper is the most common metal used for wiring inside the home and in most
11 appliances. After World War II, aluminum wire came into use for house wiring due to the
12 escalating cost of copper. However, aluminum wire in homes has been linked to fires and is
13 prohibited by code in many parts of the country. Aluminum has an expansion/contraction
14 rate thirty times that of copper. This expansion and contraction can cause screws that are
15 used to attach the wire to switches and terminals to loosen, thereby causing arcing and,
16 potentially, a fire.
17 Many homes may be found that still have aluminum wiring. Aluminum wire is lighter than
18 copper, is ideal for long transmission lines, and is typically used to connect the power pole
19 to the house.
20 All conductors must be insulated with material that restricts the flow of electricity.
21 Insulating materials commonly used include rubber, plastic, and glass. Insulators prevent
22 conductors from touching other surfaces; they direct the power to the appliance or
23 equipment where it is needed. Insulators used in a house are color-coded for specific use.
24 Black, red, or blue is used for the hot side of the circuit. White is used on the neutral side;
25 green is used for a ground wire.
26 Most appliances and electrical outlets are polarized, which means they are designed so
27 that the hot and neutral wires are not inadvertently reversed. Reversing these wires when
28 connecting an outlet or appliance can potentially cause an electric shock. Polarization is
29 accomplished by making one prong of the plug larger than the other and the outlet to match.
30 The longer prong is the neutral that fits into the longer slot on the outlet.
31
32 Circuits
33
34 Electrical circuits have three components: 1) a source, 2) a path, and 3) a load. There
35 are two types of power sources: 1) batteries, which provide direct current (DC), and 2) local
36 power-generating stations that provide alternating current (AC). Conductors provide the path
37 from the source to the load. The load is the device that is to work, or operate, such as a light
38 bulb, washer, air conditioner, and so on.
39 In residential applications, there are generally three wires, which come into the building.
40 Two are hot wires that deliver 120 volts; the third is a neutral. Most lights and small
41 appliances operate on 120 volts, while hot water tanks and air conditioners operate on 240
42 volts. One hot wire plus the neutral is used for 120-volt applications; two hot wires plus the
43 neutral are used for 240-volt appliances.
44
45
46
47
48
49
50
51
52

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1 Electrical Terminology
2
3 • Voltage. Voltage (volts) is a measure of the force with which electrical energy is
4 delivered.
5
6 • Amperage. Amperage (amperes or amps) refers to the flow rate of electrical current
7 through the circuit. Most lighting circuits use 14-gauge copper wire. Higher amperage
8 applications require heavier wire sizes.
9
10 • Wattage. Wattage (watts) refers to the amount of electricity being used. A 60-watt
11 light bulb uses less electricity than a 100-watt bulb.
12
13 Watts = Amps x Volts
14
15 • Ohm. Ohm is a measure of the resistance of a load, such as a motor, to the flow of
16 electrons. All loads tend to restrict the flow of electrons through the circuit; the
17 greater the resistance, the more heat that may be generated.
18
19 Circuit Protection
20
21 Heat generated by electricity, which is flowing through the conductors, can reach
22 dangerous levels if overloaded. Electric service panel boxes contain either fuses or circuit
23 breakers that are heat-sensitive so they will break the circuit before the temperature can
24 reach above safe levels. Older systems used fuses that contained a heat strip designed to
25 melt at a certain temperature, thereby interrupting the flow of electricity. Modern systems
26 use circuit breakers that trip to the off position when overheating occurs. Fuses must be
27 replaced if the heat strip melts, but circuit breakers can be reset and continued in use.
28 A main fuse or circuit breaker located in the panel box limits the total
29 amperage within the home. Older homes had total service of no more
30 than 60 to 100 amperes. These systems are inadequate in today’s
31 world. Most homes are now equipped with 200 amperes or more,
32 depending on size and equipment requirements. Typical household
33 circuits are limited to 15 amperes; appliance circuits may be limited to
34 20 or 30 amperes. Fuses or circuit breakers should never be replaced
35 with one of greater amperage rating.
36 Areas of a house that present a greater risk of electrical shock
37 require ground fault interrupters (GFIs). These are typically found
38 outside and in kitchens and baths.
39
40 REGULATION OF THE CONSTRUCTION INDUSTRY
41
42 Federal, state, and local building codes provide a set of rules that specify minimum
43 standards for buildings and structures. The purpose of building codes is to protect the public
44 health, safety, and general welfare as they relate to the construction and occupancy of
45 buildings and structures. The building code becomes law of a particular jurisdiction when it
46 is formally enacted by the appropriate authority.
47 Building codes are generally applied by architects, engineers, and construction
48 contractors, but are also used by others, including inspectors, real estate developers, and
49 insurance companies.

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1 Federal Regulation
2
3 The federal government imposes certain building code requirements on all states that
4 they must follow in order to receive revenue-sharing funds. This money is important to the
5 states for maintaining highways, schools, and other public works. A model building code has
6 been adopted by the federal government and modified with regional codes designed to meet
7 geographical need.
8 The southeastern United States is governed by the Southern Building Code, which
9 regulates the construction of all buildings in Florida. The Southern Building Code has been
10 modified several times in response to changing technology and weather-related disasters.
11 The most recent change was made subsequent to Hurricane Andrew, which struck south
12 Florida in 1992. Many construction shortcomings were realized when damage was reviewed
13 after the storm. That review led to significant
14 modification of the code.
15 The Federal Emergency Management Agency
16 (FEMA) establishes construction standards within
17 designated floodplains that must be adopted by local
18 political jurisdictions for those jurisdictions to qualify
19 for federal flood insurance.
20
21 State Regulation
22
23 States are allowed to modify the building code to meet area requirements, so long as
24 those modifications are consistent with federal guidelines. F.S. 553, Building Construction
25 Standards, adopts the Southern Building Code as the standard for all construction within the
26 state. The code has been further strengthened beyond that established by federal
27 guidelines. F.S. 553, Building Construction Standards, contains eight parts:
28
29 Part I: Manufactured Buildings
30 Part II: Accessibility by Handicapped Persons
31 Part III: Trench Safety Act
32 Part IV: Florida Building Code
33 Part V: Thermal Efficiency Standards
34 Part VI: Energy Conservation Standards
35 Part VII: Standards for Radon-Resistant Buildings
36 Part VIII: Building Energy-Efficiency Rating System
37
38 Other state statutes related to construction include F.S. 515, the Swimming Pool Safety
39 Act and F.S. 468, Part XII, Building Code Administrators and Inspectors.
40
41 Local Regulation
42
43 Each county adopts its own code, within the federal and state guidelines. It is not
44 unusual to find county or city codes that far exceed federal and state requirements.

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CHAPTER 7 REVIEW QUESTIONS

1. An lot is bounded on each side by another lot. A lot may not be

desirable due to car headlights shining into the home. Access to a lot is over a
narrow road or driveway with improvements located at the rear of the property.
lots and lots may not conform to current zoning and building codes due to
minimum frontage requirements.
2. The of a building is located below ground and supports the
building’s weight.
3. Older homes in Florida may have foundations, which are
constructed with the living area elevated above the ground on cement blocks. However,
most Florida homes have foundations, which are made of poured
with reinforced rods.
4. foundations are the most economical type of foundation and are
often placed on , which are designed to prevent excessive settling or
movement of the structure.
5. The is the load-bearing frame of the building, including the
walls and roof.
6. windows have only one pane of glass that is movable, as opposed
to windows that have upper and lower panes, both of which may be
opened or closed. windows have small horizontal panes which open and close
together with a crank.
7. Insulation is rated according to its . The value, the
better the insulating characteristics of the material.
8. insulation is blown into wall cavities and attic spaces.
insulation is a type of insulation that comes in sheets and has a foil facing
to reflect radiated heat. insulation is piped into or sprayed into the desired
area and allowed to dry.
9. pipe becomes soft when heated and should never be used for hot water
distribution.
10. Hot water tanks can build up internal pressure during the heating cycle. It is important
that all tanks be protected from explosion by a well-functioning .
11. The capacity of a heating or air-conditioning system is rated in ________________.
12. Central air-conditioning systems operate by circulating liquid , usually
Freon, which is under pressure, through copper tubing to an , often
located in the attic in older Florida homes. A is located outside the
home. An air-conditioning system absorbs moisture, which is run to the outside of the
home through a .
13. A is a self-contained heating and cooling system. To create heat, the
flow of refrigerant is reversed with a located in the outside unit.
Because these units are slow to respond to the need for heat in extreme cold, many
units also include a which is operated from an emergency heat
setting on the thermostat.
14. Areas of the house that present a higher risk of electrical shock, such as kitchens and
bathrooms, require .
15. Federal, state, and local provide a set of rules that specify
minimum standards for buildings and structures.
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CHAPTER 7 PRACTICE EXAM

1. There are advantages and 5. Which of the following statements is

disadvantages to using wood or correct regarding small cracks in the
masonry framing. Which statement is exterior surface of a masonry
INCORRECT? building?
a. Masonry is a much better insulator a. They always indicate structural
than wood, which reduces cooling damage.
costs. b. They are common.
b. Wood has a potential for termite c. They are just as big a problem as
infestation or other types of decay. large open cracks.
c. Reinforced concrete block exterior d. They should be ignored.
walls are strong but may develop
cracks. 6. What type of residential roof is
d. Masonry blocks cannot be insulated. required to have substantial
anchoring to mitigate damage caused
2. Why are test borings of the soil by hurricanes and strong storms?
important for deciding on the type of a. Flat
foundation? b. Gable
a. To establish the weight of the c. Barrel tile
building d. Shingle
b. To locate possible sources of
termites 7. Which type of roof is especially
c. To determine the soil’s weight- susceptible to wear from standing
bearing capacity water?
d. To locate the depth of the water table a. Flat
b. Gable
3. Which of the following is NOT an c. Barrel tile
example of federal regulation of the d. Shingle
construction industry?
a. F.S. 533 Building Construction 8. What is one indication that an asphalt
Standards shingle roof is near the end of its
b. Model building code useful life?
c. Southern Building Code a. Curling along the edges
d. FEMA standards for designated b. An expiration date stamped on the
floodplains surface
c. An abrupt change in color
4. Which type of door is prohibited for d. High humidity within the living space
the use listed?
a. Solid wood, interior bathroom door 9. Which system, referred to as an “on-
b. Solid wood, exterior side-garage demand” system, provides heated
door water only when needed?
c. Hollow-core, metal interior door a. Heat pump
leading to the garage b. In-wall gas heater
d. Hollow-core, wood interior bedroom c. Water heater with a 40-gallon tank
door d. Tankless water heater

10. What is the relationship between

watts, amps, and volts?
a. Amps = Watts x Volts
b. Volts = Amps x Watts
c. Watts = Amps x Volts
d. Watts = Amps ÷ Volts

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11. What type of piping material has been 14. What electrical device can be used to
associated with leaking joints? protect against overheating in an
a. PVC electrical system?
b. CPVC a. Volt meters
c. PB b. Circuit breakers
d. Copper c. Amp meters
d. Load restrictors
12. Which system uses the temperature
of the subsoil to heat and cool a 15. Electrical circuits have three
home? components: a source, a path, and a
a. Radiant load. Which item is an example of an
b. Geothermal electrical load?
c. Heat pump a. Circuit breaker
d. Steam b. Power line providing electricity to a
home
13. Which type of conductor, used in c. Interior wiring in a home
residential wiring, has been linked to d. Clothes dryer
fires due to expansion and
contraction that can cause the
connection to loosen?
a. Aluminum
b. Copper
c. Gold
d. Silver

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Florida Real Estate Sales Associate Post-License Course Reicon Publishing, LLC
 CHAPTER

FAIR HOUSING LAWS

OVERVIEW Real estate professionals have an ethical responsibility to all of
their clients and customers. When it comes to fair housing laws, the
responsibility is also a legal one. Civil rights laws in the real estate
industry are designed to generate circumstances in which persons
with similar financial means have similar choices when attempting to
buy, lease, rent, or finance property. The laws are also designed to
allow every person an opportunity to live in the place of their choice
by creating an open and unbiased market.
Fair housing laws on the federal, state, and local levels affect
every aspect of a real estate transaction. In this chapter, we will take
a historical look at the fair housing laws, see which classes of
individuals are protected, learn the exemptions to the laws, and find
out how the laws are enforced. We will also look at your
responsibilities as a real estate professional for following these laws
as well as for seeing that both your sellers and buyers follow them,
too.

OBJECTIVES After completing this chapter, you should be able to do all of the
following:

• List the protected classes that are covered by the fair housing
laws
• Identify prohibited activities and violations
• Explain the exemptions to the fair housing laws
• Identify the civil rights protections provided under the
Americans with Disabilities Act (ADA)
• Describe how the federal fair housing laws are enforced
• Explain key aspects of the Florida fair housing laws
• Discuss how to avoid discrimination when working with
buyers and sellers and in advertising

1 FEDERAL FAIR HOUSING LAWS – AN HISTORICAL PERSPECTIVE

2
3 The primary focus of the fair housing laws is to protect the public, prospective renters,
4 and buyers of real estate from discrimination; however, these laws also offer protection for
5 real estate professionals who are members of the protected classes. Before we talk about
6 how the fair housing laws affect real estate practices, we’ll look at the actual laws, the areas
7 of coverage, and when they were enacted.

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1 Civil Rights Act of 1866

2
3 The original Civil Rights Act was enacted in 1866.
4 It prohibits discrimination based on race in the
5 purchase, sale, or lease of real property. It covers only
6 race as a protected class and applies to everyone.
7
8 • Race. As a real estate professional, you must
9 never indicate the racial or ethnic makeup of
10 any area in your advertising, marketing, or any other representation to the public.
11 You must not show a prospective buyer property in any area based on race, even if
12 that request came from the buyer.
13 Race refers to physical features and characteristics that may be associated with
14 a racial or ethnic group. Showing homes to a buyer only in neighborhoods where
15 they conform to the prevailing racial population is an example of illegal racial
16 discrimination, referred to as steering.
17
18 Federal Fair Housing Act
19
20 In 1968, under Title VIII of the Civil Rights Act, the protections under the 1866 Act were
21 expanded to add additional protected classes. This is known as the Fair Housing Act. The
22 expanded protected classes include color, religion, and national origin.
23 How this affects you as a real estate professional is explained below.
24
25 • Color. You must never indicate the color, racial, or ethnic makeup of any area in
26 your advertising, marketing, or any other representation to the public. You must not
27 show a prospective buyer property in any area based on color, race, or ethnic
28 makeup, even if that request came from the buyer.
29 Color refers to a person’s skin color. Color is included separately from race
30 because people can discriminate solely on color. For example, someone
31 discriminates against another person whose skin is lighter or darker. Discrimination
32 based on color occurs when a licensee uses skin color as a determining factor in any
33 aspect of a real estate sales transaction.
34
35 • Religion. You must never indicate the religious makeup of any area in your
36 advertising, marketing, or any other representation to the public. You must not show
37 a prospective buyer property in any area based on religion, even if that request came
38 from the buyer.
39
40 • National origin. You must never indicate the national origin of or language spoken
41 by residents in any area in your advertising, marketing, or any other representation to
42 the public. You must not show a prospective buyer property based on the language
43 spoken in a given area, even if that request came from the buyer.
44
45 In 1968, the Supreme Court in Jones v. Mayer ruled that discrimination based on race is
46 strictly prohibited. This means there can be no exemptions or exceptions with regard to
47 race.

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1 In 1974, the Housing and Community Development Act added sex to the list of protected
2 classes. This affects you as follows:
3
4 • Sex. You must never indicate a preference for a buyer or tenant based on their sex
5 in any advertising, marketing, or any other representation to the public. There may
6 be an exception if the advertising is for a roommate in a cohabitation situation.
7 (Advertising is discussed later in this chapter.)
8
9 In 1987, a Supreme Court decision expanded the definition of race to include ancestry.
10
11 1988 Fair Housing Amendment
12
13 In 1988, the Fair Housing Act was expanded to include handicap and familial status.
14 These are explained below.
15
16 • Handicap. With regard to discrimination, physical or mental disability (handicap)
17 includes hearing, mobility, and visual impairments, such as chronic alcoholism,
18 chronic mental illness, AIDS, AIDS Related Complex, and mental retardation.
19 As with the other protected classes, you must never indicate a preference for or
20 against a buyer or tenant based on a handicap, or state that a property is not
21 handicap accessible in any advertising, marketing, or any other representation to the
22 public. There may be an exception in advertising if a property is already handicap
23 accessible.
24 With regard to leasing of rental property, if a person has a physical or mental
25 disability (handicap) that substantially limits one or more major life activities, has a
26 record of such a disability, or is regarded as having such a disability, a property
27 owner may not refuse to let the tenant make reasonable modifications to the dwelling
28 or common use areas, at his or her expense, so he or she can use the housing.
29 In some cases, the property owner may allow changes only if the tenant agrees
30 to restore the property to its original condition when he or she moves.
31 The property owner also may not refuse to make reasonable accommodations in
32 rules, policies, practices, or services if necessary for the disabled person to use the
33 housing. For example, a building with a "no pets" policy must allow a visually
34 impaired tenant to keep a guide dog.
35
36 • Familial status. Unless a building or community qualifies as housing for older
37 persons, it may not discriminate against families in which one or more children
38 under 18 live with one of the following persons: a parent, a person who has legal
39 custody of the child or children, or the designee of the parent or legal custodian, with
40 the parent or custodian's written permission.
41 Familial status protection also applies to pregnant women and anyone securing
42 legal custody of a child under 18.
43 Again, you must
44 never indicate a
45 preference for or
46 against a buyer or
47 tenant based on familial
48 status, such as the
49 family has children, the
50 number of children a
51 family has, or a woman
52 in the family is
53 pregnant.

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1 Summary of Protected Classes

2
3
4 Summary of Protected Classes
5
6 Year Added Protected
Memory Aid
7 and Legislation Classes
8 1866
9 Race Realtors
Civil Rights Act
10
11 Color Can
12
13 1968 Religion Really
14 Title VIII of the Civil Rights Act
15 (Fair Housing Act) Sex Sell
16
17 National Origin Nice
18
19 Handicap Houses
1988
20
Fair Housing Amendment Act
21 Family Fast
22
23
24 SUMMARY OF PROHIBITED ACTS
25
26 Fair housing laws prohibit a number of discriminatory activities when dealing with real
27 estate.
28
29 • In the sale and rental of housing, no one may take any of the following actions
30 based on race, color, national origin, religion, sex, familial status, or handicap:
31
32 o Refuse to rent or sell housing
33 o Refuse to negotiate for housing
34 o Make housing unavailable
35 o Deny a dwelling
36 o Set different terms, conditions or privileges for sale or rental of a dwelling
37 o Provide different housing services or facilities
38 o Falsely deny that housing is available for inspection, sale, or rental
39 o For profit, persuade owners to sell or rent (blockbusting)
40 o Deny anyone access to or membership in a facility or service (such as a multiple
41 listing service) related to the sale or rental of housing
42
43 • A real estate brokerage may not:
44
45 o Set or permit different fees for members of any protected class for membership in
46 the MLS.
47 o Deny or limit benefits accruing to members of the brokerage or organization
48 based on those persons being members of any protected class.
49 o Establish geographic boundaries, office location, or residence requirements for
50 access to, or membership in, any real estate-related organization, based on an
51 individual's membership in any of the protected categories.

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1 • A landlord may not:

2
3 o Refuse to let a tenant make reasonable modifications to the dwelling or common
4 use areas, at the tenant’s expense, if necessary for a disabled person to use the
5 housing. (Where reasonable, the landlord may permit changes only if the tenant
6 agrees to restore the property to its original condition when they move.)
7 o Refuse to make reasonable accommodations in rules, policies, practices, or
8 services if necessary for the disabled person to use the housing.
9
10 • In mortgage lending, no one may take any of the following actions based on race,
11 color, national origin, religion, sex, age, familial status or handicap (disability):
12
13 o Refuse to make a mortgage loan
14 o Refuse to provide information regarding loans
15 o Impose different terms or conditions on a loan, such as different interest rates,
16 points, or fees
17 o Discriminate in appraising property
18 o Refuse to purchase a loan
19 o Set different terms or conditions for purchasing a loan
20
21 • In addition, it is illegal for anyone to:
22
23 o Threaten, coerce, intimidate, or interfere with anyone exercising a fair housing
24 right or assisting others who exercise that right
25 o Advertise or make any statement that indicates a limitation or preference based
26 on race, color, national origin, religion, sex, familial status, or handicap. This
27 prohibition against discriminatory advertising applies to single-family and owner-
28 occupied housing that is otherwise exempt from the Fair Housing Act.
29
30 Specific Violations
31
32 Fair housing laws also prohibit these activities:
33
34 • Steering or channeling. Steering (or channeling) is the
35 practice of directing homebuyers toward or away from
36 homes in certain neighborhoods or in a multiunit building in
37 order to preserve or alter the makeup of that neighborhood
38 with respect to race, religion, sex, or national origin. This is a
39 violation against a buyer by limiting choices.
40
41 • Blockbusting. Blockbusting is the practice of inducing owners to sell by telling them
42 that persons of a protected class are moving into the neighborhood and the results
43 will be detrimental to the neighborhood. This is a violation against a seller and is also
44 known as panic selling or panic peddling. Even unusually heavy solicitation for
45 listings in racially transitional neighborhoods may be unlawful.
46 The use of terms or phrases, such as decreasing property values, bad schools,
47 and undesirable elements are strictly prohibited.
48
49 • Redlining. Redlining is the illegal practice of refusing mortgage financing or
50 insurance based on a specific geographical location, age of the property, the income
51 level of the residents, or the racial composition of the area.

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1 Fair Housing Poster (HUD Poster)

2
3 All brokers are required to display the Fair Housing Poster in their place of business.
4 If a licensee is accused of discrimination, the burden of proof falls on the person who
5 makes the accusation. However, if a broker does not display the poster, this fact in itself is
6 evidence of discrimination and the burden of proof shifts to the broker.
7 This is an example of the HUD poster.
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39 EXEMPTIONS
40
41 The fair housing laws allow for exemptions in some areas. However, please note there
42 are no exemptions, exceptions, or excuses for racial discrimination.
43 To qualify for exempt status, the transaction must meet both of these two conditions:
44
45 1. The services of a real estate professional were not used
46 2. The advertising for the property was not discriminatory
47
48 Some exemptions to the laws enacted between 1968 and 1988 include the following:
49
50 • A private club may restrict rental or occupancy of its dwellings to members only, as
51 long as the dwellings are not commercially operated. However, the club may not
52 discriminate in its membership requirements.

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1 • Owner-occupied properties of not more than four units are exempt, as long as the
2 owner has not used a real estate licensee in the transaction.
3
4 • Single-family housing is exempt if it is sold or rented without the use of a real estate
5 licensee as long as the private individual owner does not own more than three such
6 single-family homes at one time.
7
8 • Property owned by churches or fraternal organizations that is used for lodging of its
9 members is exempt provided that the church or organization does not discriminate in
10 the selection of members.
11
12 • Senior citizen housing is exempt under the following conditions:
13
14 o 80% of the units are occupied by at least one person who is 55 years of age or
15 older and if it publishes and follows policies and procedures that demonstrate the
16 intent to be 55 and older housing.
17
18 o Housing is occupied solely by persons who are 62 years of age or older.
19
20 o Housing is for the elderly or the poor and is financed or subsidized by state or
21 federal government agencies.
22
23 AMERICANS WITH DISABILITIES ACT (ADA)
24
25 The Americans with Disabilities Act (ADA) gives civil rights protections to individuals who
26 have disabilities similar to those provided to individuals based on race, sex, national origin,
27 and religion. It guarantees equal opportunity in employment, public accommodations,
28 transportation, state and local government services, and telecommunications.
29 The ADA was enacted in 1990 with the purpose of removing barriers for people with
30 disabilities. Properties open to the public must remove any barriers that limit access or utility
31 of the property for individuals with disabilities. The ADA also mandates design specifications
32 for multifamily dwelling units to provide accessible and usable common areas for people
33 with disabilities.
34 Some of the more common problems addressed by the ADA are:
35
36 • Wheelchair ramps
37 • Support bars in restrooms
38 • Wheelchair accessible toilets
39 • Raised lettering on elevator buttons
40 • Audible floor signals in elevators
41 • Cut out curbs
42 • Size of doorways and entrances
43 • Handicap parking spaces (at least one for every 25
44 regular spaces)
45 • Installation height of fire extinguishers
46
47 Since most real estate firms are public places, they fall into the ADA’s definition of a
48 public accommodation. Brokers should evaluate how this applies to physical changes they
49 might need to make to their office space to accommodate both employees and clients.
50 In addition, brokers should alert their commercial and investor clients to the existence of
51 the law and the need to have their leases professionally evaluated and their offices
52 inspected for compliance. Owners of small businesses serving the public must remove
53 physical barriers that are readily achievable, which means easy to accomplish without much
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1 difficulty or expense. The readily achievable requirement is based on the size and resources
2 of the business, so large businesses with more resources are expected to take a more
3 active role in removing barriers than small businesses.
4 The ADA also recognizes that economic conditions fluctuate. When a business has
5 resources to remove barriers, it is expected to do so; however, when profits are down, the
6 business may delay or reduce the barrier removal. Barrier removal is an ongoing obligation.
7 The owner is expected to remove barriers in the future as resources become available.
8
9 New Construction and Renovation
10
11 If a client is planning to build a new building or renovate an existing one, they need to
12 consult the ADA Standards for the specific requirements. Renovations or modifications are
13 considered alterations when they affect the usability of the space. For example, installing a
14 new display counter, replacing fixtures or flooring, or replacing an entry door are alterations.
15 However, simple maintenance, such as repainting a wall, is not considered an alteration by
16 the ADA.
17 A model home in a real estate development is not normally required to comply with the
18 ADA. However, if the home is also the development’s sales office, the area where the sales
19 are conducted must comply with ADA, since it is a public accommodation.
20
21 ENFORCEMENT OF FEDERAL FAIR HOUSING LAWS
22
23 The federal fair housing laws are administered by the Office of Fair Housing and Equal
24 Opportunity (FHEO) under the direction of the secretary of the Department of Housing and
25 Urban Development (HUD). Any person who believes they have been discriminated against
26 may file a complaint with HUD within one year of the alleged act. HUD can also initiate a
27 complaint on its own.
28 When HUD receives a complaint, it starts an investigation.
29 Within 100 days, HUD determines if there is reasonable cause to
30 charge discrimination or to dismiss the complaint. During the
31 investigation period, HUD attempts to resolve the complaint by
32 getting assurance from the person against whom the complaint
33 was filed that they will remedy the alleged violation. This is called
34 conciliation. A conciliation agreement must protect both the
35 person who filed the complaint and the public interest. If an
36 agreement is signed, HUD takes no further action on the
37 complaint. However, if HUD has reasonable cause to believe that a conciliation agreement
38 has been breached, HUD will recommend that the Attorney General file suit.
39 If the case goes to an administrative hearing, HUD attorneys litigate the case for the
40 person who filed the complaint. That person may intervene in the case and choose to be
41 represented by their attorney instead. During the hearing, an Administrative Law Judge
42 (ALJ) considers evidence from both the complainant and the respondent. If the ALJ decides
43 that discrimination occurred, the respondent can be ordered to:
44
45 • Compensate for actual damages, including humiliation, pain, and suffering.
46 • Provide injunctive or other equitable relief, such as to make the housing available to
47 the complainant.
48 • Pay the federal government a civil penalty to vindicate the public interest. The
49 maximum penalties are $16,000 for a first violation and $70,000 for a third violation
50 within seven years.
51 • Pay reasonable attorney's fees and costs.

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1 In addition to or instead of filing a complaint with HUD, a person may file a suit in a state
2 or federal court within two years of the alleged violation. If the court finds that discrimination
3 has occurred, the person who filed the suit may be entitled to actual damages, punitive
4 damages, and/or attorney's fees and costs.
5 More than 27,000 fair housing discrimination complaints were filed in fiscal year 2011,
6 according to HUD. Discrimination based on a person’s disability continued to be the largest
7 single category of complaints. Of those complaints filed with HUD and its Fair Housing
8 Assistance Program partner agencies, 55% were alleged disability discrimination, 32% were
9 alleged discrimination based on race, and 12% were alleged discrimination based on family
10 status. These numbers are consistent with the number and type of complaints received
11 during the previous three years; however, in 2011, the total number of complaints dropped
12 slightly over the 2010 total.
13 Note: A violation of the fair housing laws is also considered a violation of Florida Statute
14 475. Any real estate professional who is found guilty of a violation may also be subject to
15 discipline by the Florida Real Estate Commission.
16
17 FLORIDA FAIR HOUSING LAWS
18
19 Florida Fair Housing Act
20
21 The Florida Fair Housing Act is outlined in Florida Statute Title XLIV, Chapter 760, Part
22 II, Fair Housing Act (heretofore referred to as F.S. 760). It declares that it is illegal to
23 discriminate in the sale, rental, advertising, financing, or providing of brokerage services for
24 housing. The Florida Fair Housing Act parallels the Federal Fair Housing Act.
25 According to the Florida Fair Housing Act, it is considered a violation of law if any
26 discriminatory action is taken based on any of the protected classes:
27
28 • Race
29 • Color
30 • Religion
31 • Sex
32 • National origin
33 • Handicap
34 • Family status
35
36 Any broker is considered in violation of the law if they in any way suggest or encourage
37 a homeowner to employ discriminatory intent to sell or rent their property. Some examples of
38 discriminatory behavior include:
39
40 • Misrepresenting that a property is not available for sale or rental.
41
42 • Refusing to accommodate a disability by making changes to a property that are
43 readily achievable and economically feasible.
44
45 • Intimidating or threatening any person who endeavors to employ any right under the
46 fair housing act

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1 55 and Older Housing

2
3 To qualify as a 55 and older housing, a
4 community must meet one of two
5 requirements: [F.S. 760.29(4)(a)]
6
7 • Option A. The housing community is designed, operated, and intended to assist
8 elderly persons who are 62 years of age or older. The housing must be totally
9 occupied by persons who are 62 years of age or older.
10
11 • Option B. The housing community is intended and operated for persons who are 55
12 years of age or older. The housing community must comply with the following
13 requirements:
14
15 o At least 80% of all the occupied units are occupied by at least one person who is
16 55 years of age or older.
17 o The housing community publishes and adheres to policies and procedures that
18 demonstrate its intent to be a provider of housing for older persons.
19 o The housing community complies with rules established by HUD for verification
20 of occupancy.
21
22 Unless a housing community complies with the requirements of a 55 and older housing
23 community, the community cannot deny residence to a family with children under the age of
24 18.
25
26 Administrative Penalty
27
28 If a housing community knowingly provides fraudulent information for meeting
29 requirements under the law, the community may be subject to a $500 administrative fine.
30 [F.S. 760.34]
31 The Florida Commission on Human Relations (FCHR) has the right to institute civil
32 action in court against any housing community if it is unable to obtain voluntary compliance
33 from the community. The community may be subject to a fine of $10,000 for a first offense or
34 up to $25,000 if the violator is found guilty of a previous offense within the last five years.
35 The court may impose a fine of up to $50,000 if the violator was found guilty of two or more
36 offenses in the past seven years.
37
38 For more information, please visit the
39 Florida Commission on Human Relations website:
40 www.fchr.myflorida.com
41
42
43 Stigmatized Properties
44
45 Florida law does not consider it to be a material fact or defect if a property was the site of
46 a murder, death, or suicide, therefore, these events do not need to be disclosed to a buyer.
47 No legal action can be taken against a broker, licensee, owner, or property owner for failure
48 to disclose such information. [F.S. 689.25]
49 If the property was inhabited by anyone with acquired immune deficiency syndrome
50 (AIDS) or human immunodeficiency virus (HIV), it is also not considered a material fact and
51 cannot be disclosed. These persons are afforded all protections under the Fair Housing Act.
52 It is illegal to discriminate against a qualified person in housing based on HIV or AIDS
53 under both the Federal Fair Housing Act and the Florida Fair Housing Act.

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1 WORKING WITH CLIENTS

2
3 When working with both sellers and buyers during the offer and negotiation process, you
4 must avoid any actions that could be interpreted as discriminatory. Actions that would be
5 judged as discriminatory include:
6
7 • Discrimination in the terms, conditions, or privileges of the transaction.
8
9 • Refusal to receive a legitimate offer or failure to transmit one.
10
11 • Refusal to negotiate with either party during the offer/counteroffer process.
12
13 • Discrimination in negotiating or executing any item or service, such as title insurance,
14 mortgage insurance, or loan guarantee.
15
16 • Insertion of any provision into a written contract that intends to prevent or restrict the
17 conveyance, encumbrance, occupancy, or lease of the property to individuals in a
18 protected class or any attempt to honor such a provision.
19
20 • Insertion into a lease or purchase and sale agreement any condition, restriction, or
21 prohibition that directly or indirectly limits the use or occupancy of the property to
22 persons in a protected class or the attempt to honor such a condition or restriction.
23
24 It is not necessary for you to have the intention to discriminate for there to be a violation.
25 If you act in a way that is perceived as discriminatory, you could actually be violating fair
26 housing laws. Many actions could be perceived as discriminatory, so you would be wise to
27 look at your sales practices and make sure that you act in ways that will keep you in
28 compliance under any circumstances. You could implement several practices to help keep
29 you in compliance.
30
31 • Ask all of your buyers the same questions when trying to prequalify them. Use a
32 standard form or checklist of questions for every client so that you will have
33 documentation that you have treated everyone in the same manner.
34
35 • Never give any member of a protected class the impression that they will have a
36 harder time getting financing and never imply that to the sellers.
37
38 • Be sure to offer to show all of the properties in your area that meet the needs your
39 clients have indicated. Never assume that you know what your clients need or want,
40 especially when choosing neighborhoods.
41
42 • Treat everyone in the same way when setting up and conducting showings, making
43 appointments to write offers, and negotiating offers.
44
45 • If you detect any discriminatory behavior in a seller, either in word or action, tell your
46 broker about it without delay.
47
48 • Be watchful for any seller whose rejection of an offer appears to have discriminatory
49 implications and ask your broker or your firm's attorney how you should handle the
50 situation if it occurs.

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1 Compliance When Listing

2
3 It is critical for you to be familiar with the antidiscrimination laws and to be mindful of
4 what kinds of activities the laws prohibit. Ignorance is not an excuse. In fact, under certain
5 circumstances even actions with good intentions can be viewed as discriminatory.
6
7 Example:
8
9 Barbara, a broker, gives a listing presentation at the home of Mr. and Mrs. Sanchez,
10 a Latino couple who, although they speak some English, are difficult to understand.
11 Barbara becomes uncomfortable about this but doesn’t say anything. After the
12 presentation, Mr. and Mrs. Sanchez tell her that they want to list their home with her.
13 Since Barbara knows a Spanish-speaking broker, Roberto, she suggests that the couple
14 may want to list their property with him. However, Mr. and Mrs. Sanchez decided that
15 they want to list the property with Barbara. She insists they would be better served if
16 they listed with Roberto. Even though Barbara’s intentions are good, and she feels that
17 she is giving helpful advice to the couple, her actions could be considered discriminatory
18 based on national origin. If she refuses the listing, she could be violating fair housing
19 laws.
20
21 Most real estate professionals do not intentionally act in a discriminatory way or say
22 things that they know are discriminatory. However, you need to be very aware of what you
23 are saying at all times. It may seem innocent enough to tell racial or ethnic jokes and make
24 disparaging remarks about particular groups of people does not mean that you would
25 actually discriminate in a real estate transaction. However, saying those types of things can
26 lead to the assumption on the part of a buyer or a seller that you are racist or bigoted. In
27 addition, if you stand by while someone else makes potentially discriminatory remarks, it can
28 appear that you agree with those attitudes.
29 When performing a listing presentation, it is important for you to go over the fair housing
30 laws with the prospective seller. You must stress to the seller that you will adhere strictly to
31 those laws. It is also critical that the seller agree to comply with antidiscrimination laws. If a
32 seller will not make that commitment, you should refuse to take the listing. You should also
33 refuse the listing if the seller makes comments that suggest that they might act in a
34 discriminatory way. If you decide not to take a listing because you suspect a potential
35 discrimination problem, report the situation to your employing broker.
36
37 Handling Difficult Questions
38
39 Even though you do not intend to get yourself into a situation
40 that could be perceived as discriminatory, you have no control
41 over the behavior of your potential buyers and sellers. Consumers
42 could easily ask questions that can get you into trouble.
43 When on the telephone, potential purchasers might ask if
44 “Section 8” applicants are welcome, for the racial make-up of a
45 neighborhood, if a particular neighborhood is safe, or if the make-
46 up of a neighborhood would hurt the resale value of the property.
47 When meeting with a consumer face-to-face, a seller might ask that you show the property
48 only to specific groups or that you do not show the property to particular races. A purchaser
49 might ask for a specific neighborhood, school district, or church district. This is
50 discriminatory if the request is based on the desire to be with or to avoid a particular
51 protected class.

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1 Other questions that you may be asked include:

2
3 • How many white, black, Hispanic, or Asian families live in this neighborhood?
4 • What color are the neighbors?
5 • Is there a group home for mentally retarded persons in the neighborhood?
6 • Has anyone in the seller’s family had AIDS?
7 • Can you show my home only to Christians?
8 • Will the racial make-up of the neighborhood affect resale?
9 • Do I have to sell to a family with children?
10
11 Whatever the question, there is only one acceptable answer to any questions regarding
12 protected classes. That answer is, “I am prohibited by federal law from discussing race,
13 color, religion, national origin, sex, handicap, and familial status.”
14
15 ADVERTISING
16
17 Compliance with antidiscrimination laws is also critical when advertising. Discriminatory
18 advertising is defined as advertising that indicates a preference, limitation, or discrimination
19 based on race, color, religion, sex, national origin, handicap, or familial status. However, it is
20 often tricky to know what actually represents discriminatory advertising.
21 It is probably safe to say that any advertising that describes the
22 property would be considered acceptable, while advertising that
23 describes buyers might be considered discriminatory, especially if the
24 buyers are from a protected class.
25 Always use the Equal Opportunity logo or slogan in all of your
26 advertising.
27
28 Writing Advertising Copy
29
30 It can be challenging to create advertising that does not use some discriminatory words
31 or phrases. Words that are not generally recognized as being discriminatory can be, so it’s
32 important to become familiar with those phrases that you should avoid.
33 In 1995, HUD, which enforces fair housing laws, sent some guidelines to its staff to help
34 them when investigating allegations of discrimination. The memo addressed some words
35 and phrases that are not acceptable to use and others that, if used, would not constitute a
36 violation or be considered discriminatory. The HUD memo addressed only a small set of
37 possibilities, but it indicated that the staff should not move complaints forward if the ads
38 appeared reasonable and did not favor or disfavor a protected group.
39 Organizations have published lists of words to help write ads that avoid discrimination.
40 One particularly good list was compiled by the Miami Valley Fair Housing Center, Inc., in
41 Dayton, Ohio. It’s called the Fair Housing Advertising Word and Phrase List.
42
43
44 To view and/or print the Fair Housing Advertising Word and Phrase List,
45 please visit the Miami Valley Fair Housing Center website:
46 www.mvfairhousing.com
47
48
49 The complete list is provided on the following page.

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1 Fair Housing Advertising Word and Phrase List

2
able-bodied healthy only Private driveway
3 Active Hindu Private entrance
4 adult community adult living Hispanic, no Private property
adult park HIV, no Private setting
5 Homosexuals, no (City of Dayton)
adults only Public transportation(near)
6 African, no housing for older persons/seniors* Puerto Rican, no
7 Agile Hungarian, no
Quality construction
AIDS, no
8 Alcoholics, no Ideal for (should not describe people) quality neighborhood
9 Appalachian, no impaired, no Quiet
American Indians, no Indian, no Quiet neighborhood
10 Integrated references required
Asian
11 Assistance animal(s) Irish, no religious references
12 Assistance animal(s) only Italian, no Responsible
Jewish Restricted
13 Bachelor retarded, no
kids welcome
14 Bachelor pad Retirees
Bisexuals, no (City of Dayton) Landmark reference Retirement home
15 Blacks, no Latino, no
16 blind, no Lesbians, no safe neighborhood
Lesbians, no (City of Dayton) school name or school district
17 board approval required
se habla espanol
18 Catholic male roommate** seasonal rates
19 Caucasian males(s) only** seasonal worker(s), no
Chicano, no man (men) only** Secluded
20 children, no Mature section 8 accepted/welcome
21 Chinese mature complex section 8, no
Christian mature couple Secure
22 Churches, near mature individuals security provided
23 college students, no mature person(s) senior adult community*
24 Colored Congregation membership available senior citizen(s)*
Convalescent home Membership approval required senior discount
25 Convenient to Mentally handicapped, no senior housing*
26 Couple Mentally ill, no senior(s)*
27 couples only Mexican, no sex or gender**
Credit check required Mexican-American, no Shrine
28 crippled, no Migrant workers, no single family home
29 Curfew Military, no (State of Ohio) single person
Mormon Temple single woman, man**
30 Deaf, no Mosque singles only
31 Den Mother in law apartment sixty-two and older community*
disabled, no Muslim
32 domestics, quarters
Smoker(s), no
Smoking, no
33 Drug users, no Nanny's room
Snowbirds*
34 Drugs, no Nationality sober
Near
35 employed, must be Sophisticated
Negro, no
empty nesters Spanish speaking
36 Neighborhood name Spanish speaking, no
English only Newlyweds
37 Equal Housing Opportunity Nice
Square feet
Straight only student(s)
38 ethnic references non- smokers Students, no
Exclusive # of bedrooms
39 Executive Supplemental Security Income
# of children
40 # of persons
(SSI), no
families, no Synagogue, near
41 families welcome # of sleeping areas
42 family room Nursery temple, near
family, great for nursing home tenant (description of)
43 Older person(s) Townhouse
female roommate**
44 female(s) only** one child traditional neighborhood
45 55 and older community* one person traditional style
fixer-upper Oriental, no tranquil setting
46 Transgenders, no (City of Dayton)
Parish
47 gated community
perfect for (should not describe
two people
Gays, no
48 Gays, no (City of Dayton) people) Unemployed, no
49 Gender pets limited to assistance animals Verifiable Income
golden-agers only pets, no
50 Philippine or Philippinos, no walking distance of, within
golf course, near Wheelchairs, no
51 group home(s) no physically fit
play area, no White White(s) only
52 guest house
preferred community winter rental rates
53 handicap accessible Prestigious winter/summer visitors*
handicap parking, no woman (women) only**
54 Handicapped, not for
Privacy
Private
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1 The legend and additional notes for the Fair Housing Advertising Word and Phrase List
2 are:
3
4
5
6
* Permitted to be used only when complex or development qualifies as housing
7
for older persons
8
9 ** Permitted to be used only when describing shared living areas or
10 dwelling units used exclusively as dormitory facilities by educational
11 institutions.
12
13 All cautionary words are unacceptable if utilized in a context that states an
14 unlawful preference or limitation. Furthermore, all cautionary words are "red flags"
15 to fair housing enforcement agencies. Use of these words will only serve to invite
16 further investigation and/or testing.
17
18 This word and phrase list is intended as a guideline to assist in complying with
19 state and federal fair housing laws. It is not intended as a complete list of every
20 word or phrase that could violate any local, state, or federal statutes.
21
22 This list is intended to educate and provide general guidance to the many
23 businesses in the Miami Valley that create and publish real estate advertising. This
24 list is not intended to provide legal advice. If you are in need of legal advice, please
25 see an attorney. By its nature, a general list cannot cover particular persons'
26 situations or questions. The list is intended to make you aware of and sensitive to
27 the important legal obligations concerning discriminatory real estate advertising.
28
29 Newspaper Advertising
30
31 Newspaper ads make up a large proportion of the advertising for real estate
32 professionals. These newspaper ads should not give so much as a hint of discrimination,
33 even unintentionally.
34 To be safe, use a wide variety of newspapers so you don’t give an impression of racial
35 steering. For example, if you list a home in a predominantly minority neighborhood, be sure
36 to advertise it in a citywide newspaper and not just the local neighborhood paper.
37 When using pictures of people in your advertising, be sure the pictures show diversity.
38
39 Tips to Avoid Discrimination in Advertising
40
41 Here are some tips to help you avoid discriminatory phrasing in your advertising:
42
43 • Race, color, or national origin. If you use words that describe the housing, the
44 current or potential residents, or the neighbors or neighborhood in racial or ethnic
45 terms, you will create liability for discriminatory advertising. However, if you create
46 ads that are racially neutral, you will have no liability.
47
48 Example:
49
50 Discriminatory phrases: “white family home” or “no Italians”
51
52 Nondiscriminatory phrases: “private setting,” “rare find,” or “quiet neighborhood”

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1 • Religion. If you create an ad that is explicit in its preference for or limitation of any
2 particular religion, the ad is discriminatory. If you create an ad that contains
3 descriptions of properties or services that do not indicate a preference for the kind of
4 person who would use those facilities, the ad would not be discriminatory. Using a
5 description like, “Walking distance to a worship center of a specific religion” might
6 seem innocent and accurate but remember that it might be perceived as
7 discriminatory for different religious worshipers who do not receive information about
8 their worship center. Furthermore, not everyone is able to walk. The disabled in a
9 wheelchair might feel disparaged. Remember that you are not a consumer anymore;
10 you are a professional, and as a such it is your duty to respect the discrimination
11 laws even in your advertisements.
12
13 Example: Discriminatory phrases: “no Jews,” “shrine,” or “parish”
14
15 Nondiscriminatory phrases: “apartment complex with chapel” or “kosher meals
16 available.”
17
18 • Sex. If you write an ad for a single-family home or a separate unit in a multi-family
19 dwelling, the ad must not have an overt preference for or limitation of any person that
20 is based on sex unless the ad is describing shared living areas or homes used
21 exclusively as dormitories by educational institutions. Other terms may reference
22 sex, but since they are commonly used as physical descriptions of housing units,
23 they are not considered discriminatory advertising.
24
25 Example: Discriminatory phrases: “males only,” “men only,” “women or females
26 only”
27
28 Nondiscriminatory phrases: “mother-in-law apartment,” or “master bedroom”
29
30 • Handicap. You should never write a real estate advertisement that contains explicit
31 exclusions, limitations, or other indications of discrimination based on handicap. On
32 the other hand, advertisements that include descriptions of the property, services or
33 facilities, or neighborhoods are not considered discriminatory advertising. You could
34 also describe in an ad the conduct that is required of residents without it being
35 viewed as discriminatory. For example, you could use the phrases non-smokers or
36 sober. It is also within the law to write an ad that gives descriptions of accessible
37 features, such as wheelchair ramp.
38
39 Example: Discriminatory phrases: “no wheelchairs,” “able-bodied persons only,”
40 “no deaf,” or “no handicapped parking”
41
42 Nondiscriminatory phrases: “great view,” “fourth-floor walk-up,” “walk-in closets,”
43 “jogging trails,” or “walk to bus-stop,” “non-smokers” or “sober”
44
45 • Familial Status. You should never write an advertisement that contains limitations
46 on the number or ages of children, or state a preference for adults, couples, or
47 singles. Advertisements that include descriptions of the property, services or
48 facilities, or neighborhoods are not considered discriminatory advertising.
49
50 Example: Discriminatory phrases: “couples only,” “empty nesters,” “single
51 person,” “no families,” “mature individuals,” or “senior discount”
52
53 Nondiscriminatory phrases: “two bedroom,” “cozy,” “family room,” “no bicycles
54 allowed,” or “quiet streets”
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 Fair Housing Laws 227

CHAPTER 8 REVIEW QUESTIONS

1. The Civil Rights Act of 1866 prohibited discrimination in the purchase, sale, or lease of
real property based on only. The Federal Fair Housing Act expanded
protection in 1968 and 1974 to include , , , and
. The 1988 Fair Housing Amendment added and to
the list.
2. Fair housing laws do not allow exemptions for under any circumstances.
3. A landlord may not refuse to let a tenant make modifications to the dwelling
or common use areas, at the expense, if necessary for a disabled person
to use the housing.
4. is the illegal practice of directing homebuyers toward or away from
homes in certain neighborhoods or in a multiunit building in order to preserve the
makeup of that neighborhood. This is a violation against a buyer by .
5. is the illegal practice of inducing owners to sell by telling them that
members of a protected class are moving into the neighborhood and the results will be
detrimental to the neighborhood. This violation against the seller is also known as .
6. is the illegal practice of refusing mortgage financing or insurance
based on a specific geographical location, age of the property, income level of the
residents, or the racial composition of the area.
7. All brokers are required to display the in their
place of business. If this is not displayed, the burden of proof against an accusation of
discrimination by a licensee may shift from the accuser to the .
8. Except for discrimination, some real estate transactions may be exempt from
fair housing laws. To qualify for exemption, a real estate transaction must meet both of
the following conditions: (1) the services of a were
not used, and (2) the for the property was not discriminatory.
9. The gives civil rights protections to
individuals who have disabilities. Under this law, properties must
remove any barriers that limit access or utility of the property for individuals with
disabilities.
10. Under the ADA, owners of small businesses serving the public must remove physical
barriers that are , which means easy to accomplish without much
expense. The ADA also mandates design specifications for new or renovated buildings,
including dwellings.
11. During a complaint investigation, HUD attempts to get a
agreement from the person against whom the complaint was filed stating that they will
remedy the alleged violation.
12. The maximum civil penalty for a first-time fair housing violation is .
13. A violation of the Florida Fair Housing Act (F.S. ) is also considered a violation of
F.S. .
14. It is not necessary for you to intend to discriminate for there to be a violation. If you act in
a way that is as discriminatory, you could be violating fair housing laws.
15. If you decide not to take a listing because you suspect a potential discrimination problem
with the seller, you should report the situation to .

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CHAPTER 8 PRACTICE EXAM

1. Fair housing law exemptions do NOT 5. Which of these transactions, if

exist for which protected class? performed without the use of a real
a. Race estate professional, is NOT an
b. Sex exemption to the fair housing laws?
c. Religion a. Sale of a home in a development for
a. Handicap residents 55 or older
b. Rental of a home by a religious
2. When must a fair housing complaint organization that provides housing to
be filed with the HUD? members only and does not
a. Within five years of the occurrence. discriminate in the selection of its
b. Within three months of the members
occurrence. c. Sale of a single-family home when
c. Within six months of the occurrence. the owner owns five single-family
d. Within one year of the occurrence. residences
d. Rental of a unit in an owner-occupied
3. Which law extended discrimination to four-family house
include handicap and familial status?
a. Civil Rights Act of 1866 6. A building or community may not
b. Housing and Community discriminate based on certain familial
Development Act status. Which familial status is NOT
c. Civil Rights Act of 1968 protected by fair housing law?
d. 1988 Fair Housing Amendment a. At least one adult with children under
18 years of age
4. Which of the following is the b. An illegal drug user under 18 years
acceptable response when a client of age
asks you about the racial make-up of c. A person who is pregnant
a neighborhood? d. A person who is in the process of
a. "That is not something I'd know securing legal custody of a child
about. I do not pay attention to things
like that." 7. What is the term used to describe the
b. “I am prohibited by federal law from practice of influencing owners to sell
discussing race, color, religion, because of the possible entry into the
national origin, sex, handicap, and area of people of a certain race or
familial status.” color?
c. "I don't think you'd really fit in there - a. Redlining
you probably want a safer area." b. Steering
d. "I get the feeling this would really be c. Residential blocking
your type of neighborhood since the d. Blockbusting
people here are just like you and
your family."

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8. A housing community in Florida 11. Carl has a habit of directing minority

claims to be an “over 55 community.” clients to the south end of town
Which condition is NOT required for because he feels they would be more
the community to be in compliance comfortable in that neighborhood.
with Florida law? What is this practice called?
a. The community publishes and a. Blockbusting
follows the policies and procedures b. Redlining
required for housing of older c. Panic selling
persons. d. Steering
b. At least one 55 or older person
resides in 80% or more of the 12. Dan has violated the fair housing law
occupied units. for the third time in seven years. How
c. HUD verification of occupancy rules much could his fine be?
are followed. a. $10,000
d. No one under age 55 occupies any b. $25,000
unit. c. $70,000
d. $100,000
9. Broker Sandra accepted a listing for a
home. A week later, the owner told 13. Which of the following should always
her that he was not willing to sell to be included in any advertising for
an African American person or family. residential property?
Which of the following is true? a. Photos of models from the same
a. Sandra should abide by the owner’s ethnic group as the target
wishes. neighborhood
b. She should restrict her advertising to b. Photos of models from a different
venues that cater to the African- ethnic group than the target
American community. neighborhood
c. Sandra should explain to the owner c. The Equal Housing Opportunity
that the request is in violation of the slogan or logo
Fair Housing Act and she cannot d. A description of the racial
abide by it. demographics of a community
d. She should have the owner
document the request in writing and 14. Which action would most likely NOT
file it with the listing agreement. be required by the Americans with
Disabilities Act?
10. The purpose of the fair housing law is a. A broker might need to change the
to protect the public, prospective layout of the office to make the aisles
renters, and buyers of real estate wider for clients in wheelchairs.
from discrimination. Which action is b. A duplex owner might need to
NOT protected? remodel the kitchen in the rental unit
a. A seller refuses to negotiate with a to accommodate persons with
buyer due to the buyer’s religion. disabilities.
b. A broker limits a sales associate c. An apartment manager might be
from working anywhere other than in required to allow a tenant with a
communities predominantly occupied disability to widen a doorway.
by people of the same ethnicity as d. During a remodeling project, a
the sales associate. shopping center could be required to
c. A seller refuses to negotiate with a make changes to the public
buyer who cannot provide a 20% restrooms to allow wheelchair
cash down payment. accessibility.
d. A renter with children under the age
of 18 must pay a higher rent due to
the age of the children.

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15. Which of these phrases is acceptable

for use in advertising?
a. White family home
b. Christian home
c. Couples only
d. Wheelchair ramp

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 CHAPTER

CLOSING REAL ESTATE

TRANSACTIONS
OVERVIEW Once a seller accepts your buyer’s offer on a property, you move
into the next phase of the transaction. The buyers will apply for
financing, order inspections, and get a preliminary title report. The
seller will pay off any liens against the property, arrange for any
repairs, and execute the deed. These activities are all part of the
closing process that leads up to and includes the final settlement of
the transaction.
A good part of your job as a real estate professional is to help
your buyer and seller through the closing process. For the most part,
your client will be unaware of how the process works and will have
numerous questions. They will want to know how long it takes to
close the sale, what their responsibilities are, and how much money
they will need to complete the sale. The seller will want to know how
much cash they will receive on the day of closing.
Once the day of closing approaches, you will need to walk them
through the charges that appear on the Closing Disclosure and help
them through the stresses of signing all the documents. In this
chapter, we will cover all the things you need to do from contract to
closing date in order to help your buyer successfully navigate this
process.

OBJECTIVES After completing this chapter, you should be able to do all of the
following:

• Describe your responsibilities during the pre-closing phase

• Discuss working with closers, home inspectors, and
appraisers
• Describe the different types of insurance the buyer will need
• Explain the charges found on the Closing Disclosure
• Identify and calculate items that are typically prorated or
prepaid between the buyer and seller
• Calculate state transfer taxes
• Discuss the final steps in the closing process

1 THE CLOSING PROCESS

2
3 After your buyer has a signed and valid contract for a real estate transaction, you must
4 begin the process of facilitating that transaction through the closing process. Someone
5 needs to move that transaction through an orderly step-by-step procedure in an organized
6 manner. Some large brokerage firms may have support staff to handle this process. Support
7 staff is overhead. That translates into more company dollars needed to pay for the support
8 and, therefore, fewer dollars for you per transaction. However, having others handle these
9 details frees you to spend more time generating transactions. Smaller brokerage firms tend
10 to let the associates handle this process to keep overhead costs down. In times when fewer
11 transactions are available, this might be a more practical approach.

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1 The secret to good planning is to anticipate things that might happen and be prepared to
2 take timely and appropriate action to eliminate or at least mitigate them before they become
3 a problem. If you are able to do this and to explain to your buyer what and why you are
4 doing it, your buyer will see your professionalism. This will bolster their confidence in your as
5 their real estate professional. Moreover, it is great advertising.
6
7 Using Checklists
8
9 Licensees often create checklists to ensure that all tasks and responsibilities are
10 handled in a timely manner and that nothing is overlooked. In addition to the list of items to
11 do, there should also be a place for the scheduled date, the actual date when the
12 responsibility was met or completed, and the initials of the person who completed the task.
13 A good checklist will help to ensure that nothing is missed along the way and all
14 requirements are met in a timely manner. The contract, company policy, legal requirements,
15 and local customs in your area dictate what goes into the checklist.
16
17 Closing Responsibilities Checklist
18
19 One such checklist is the “Closing Responsibilities Checklist.” Your real estate firm may
20 already have such a list. If they don’t, we strongly recommend that you create one. Here is a
21 guideline on where to start. You might wish to customize it accordingly to your market and
22 your firm. Your checklist may list assignments for both the listing associate and the selling
23 associate. If the transaction is in-house, where the listing and selling associates work for the
24 same broker, coordination should be easy. However, you might have other occasions in
25 which a buyer is represented by a cooperating broker. In these cases, you’ll need good
26 organization and communication skills to coordinate the assignment and execution of the
27 necessary duties and responsibilities.
28 The following is a brief summary of the possible tasks that need to be completed prior to
29 closing. These items should be on your checklist.
30
31 • Copies of the contract and addenda. The buyer, seller, cooperating broker, title
32 closing agent, and lender must receive legible, clean copies of the fully executed
33 contract.
34
35 • MLS status. The listing brokerage should change the MLS status as the transaction
36 progresses.
37
38 • Yard sign. Attach a rider to the yard sign to indicate the status, if applicable.
39
40 • Loan application. The buyers need to submit the loan application, unless they are
41 paying cash.
42
43 • Inspection, appraisal, and insurance. Any Inspections, appraisals, and
44 homeowner hazard insurance need to be ordered.
45
46 • Contingencies. Contingencies may need to be cleared, such as inspection,
47 appraisal, and loan approval. When all contingencies have been met, an associate
48 should update the MLS status to “pending” and perhaps a new rider on the yard sign
49 would be appropriate.
50
51 • Repairs. Later on in the process, the sellers may need to schedule repair work
52 identified in the inspection and arrange access for such work.

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1 • Closing agent. The clients may need to select a closing agent, if the sellers had not
2 already done this at the time they signed the listing agreement. The closing agent will
3 require certain information and copies of some documents, such as a copy of the
4 seller’s deed, previous title insurance policy, and existing mortgage information. It is
5 helpful if the sellers have the survey from when they purchased.
6
7 • Utilities. Coordination between the sellers and the buyers is helpful when arranging
8 for the switching over of the utilities effective the day of closing.
9
10 • Closing date and location. Near the end of the process, the appropriate associate
11 should inform the parties of the time and place of the closing.
12
13 • Walk-through. The walk-through inspection of the property must be scheduled. It is
14 important to do the final walk through on or before the day of closing to make sure
15 that no damages were caused by the seller while they moved out and that they left
16 all of the personal property included in the sale, like the appliances.
17
18 • Escrow funds. Any escrowed funds must be delivered to the closing agent.
19
20 • Post-closing tasks. No job is complete until all the paperwork is done. Post-closing
21 tasks include changing the MLS status to “sold,” collecting and delivering
22 commission checks and copies of the Closing Disclosure. The listing associate
23 should remove the yard signs and both the listing and selling associates should
24 review the files for completeness and then close those files. Most brokers have a
25 post-closing checklist that must be fulfilled in order to receive the commission. It is a
26 good practice to complete each task on the list so you can get your money the day of
27 closing.
28
29 MLS and Signs
30
31 If you were allowed to display a yard sign while the property was
32 actively listed for sale, then you should immediately amend the sign
33 upon changes in status, perhaps with a rider to indicate the
34 appropriate status, such as “Contingency,” “Under Contract,” or
35 “Pending or Sold.” Formerly, the Florida Real Estate Commission
36 (FREC) had a rule forbidding the display of a “Sold” sign until the
37 transaction actually closed. That rule has been repealed and now you have a
38 choice as to which rider you would prefer to use.
39 Many associates prefer to use “Contingency” as a rider because they believe this
40 will generate more calls by prospective buyers, resulting in additional prospects. Some
41 associates believe that using “Sold” on the sign tends to end any buyer interest in that
42 property and eliminates calls from other associates who may have a buyer. Others think
43 using “Sold” is better advertising and may impress the neighbors. Of course, if the sale fails
44 to close, it may defeat that purpose. Many feel that accuracy and preciseness about the
45 status is best. It is up to you as to which rider to use.
46 Some associates have learned that leaving a “Sold” sign in the yard for about a week
47 after the closing is good advertising. They have found that giving the buyer a housewarming
48 gift helps put the buyer in the frame of mind to allow you to leave your sign up for a while.
49 If the subject property is listed in the MLS, the rules say you must change the status of
50 that listing as and when it is appropriate. For example, when a contract has been accepted
51 by the seller, but there is a contingency, you should change the status to “Contingency.”
52 When the contingency has been cleared, change the status to “Pending.” When the
53 transaction closes, change the status to “Sold” and submit the required information. Not only

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1 does it benefit all real estate professionals to have up-to-date and accurate data in the MLS,
2 but also most MLS systems have rules that require members to keep listings current. This
3 means that you should update the status in a timely manner, usually within just a few days
4 of any status change.
5
6 Working with Home Inspectors
7
8 Early in the process, soon after the effective date of the
9 contract, the property needs to be inspected. Your buyer may
10 want a satisfactory inspection report before submitting a loan
11 application. A seller may want the loan application submitted
12 prior to the inspection, or at least at the time the inspection is
13 being conducted, in order to speed up the process. This is
14 another example of why working with a preapproved buyer is advantageous. A seller will be
15 less concerned about the time to get the inspection done if the buyer has been preapproved
16 for the loan.
17 If you represent the buyer, advise them to order the inspection quickly. If the buyer
18 needs to use multiple inspectors, advise your buyer that they should coordinate the
19 inspections, so they are conducted at the same time. This will save time and costs. You
20 should coordinate with each inspector to ensure they have access to both the property and
21 the community if needed. Stay with the inspector while the inspection is being performed to
22 ensure that they are being thorough. Ask the inspector to deliver copies of the report
23 immediately to both the buyers and sellers. If the report calls for any significant repairs,
24 further negotiations between buyer and seller may be necessary.
25 It is good practice to be there during the inspection. It is not unusual that a defect may
26 cause the deal to fall through. By being present, you might be able fix the issue, ask for a
27 new inspection, and save the deal. For example, the inspection of the electric panel does
28 not pass the insurance requirement, but because you’re there, you’re able to have the panel
29 replaced, call for a new inspection, and meet the insurance requirement.
30 The state of Florida requires home inspectors to be licensed through the Department of
31 Business and Professional Regulation (DBPR). [F.S. 468] An applicant for a license as a
32 home inspector must complete a 120-hour pre-license course that covers a home's
33 structure, electrical system, HVAC system, roof covering, plumbing system, interior
34 components, exterior components, and site conditions that affect the structure. Applicants
35 must also pass a DBPR-approved examination, submit to a criminal background check,
36 fingerprinting, be of good moral character, and obtain a $300,000 commercial general
37 liability insurance policy.
38
39 Choosing a Home Inspector
40
41 Your buyer may ask for help in selecting an inspector, especially if they are not from the
42 area. Remember the basic rule all associates should obey, “act responsibly, but do not take
43 on responsibility that is not yours.” When making a recommendation, remember the “rule of
44 three.” Give the buyer the names and phone numbers of at least three professionals who
45 you know will do a good job. This allows you to avoid the appearance of endorsing a
46 particular third party. Also, have the buyer call to order the inspection. Do not take on the
47 responsibility of ordering the inspection because you could become liable for paying for it.
48 If the buyer chooses the inspector and they end up being unhappy with the work, it was
49 their choice, not yours, that caused their unhappiness. This is especially important in
50 situations where you need to avoid the appearance of a conflict of interest, usually in a
51 Transaction Broker relationship when you are working with both buyers and sellers.

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1 When considering which home inspector to engage, your buyer should consider the
2 following five important items:
3
4 1. Avoid choosing an inspector who has a conflict of interest. The buyers should
5 be cautious when engaging the services of an inspector who will profit from any
6 repair action recommended. While most home inspectors are honest despite a
7 possible conflict of interest, the buyer may wish to use only inspection services that
8 do not also provide remedial services to correct any discovered deficiencies.
9
10 2. Inspection is limited to what can be readily observed. Significant problems may
11 not be detected without looking under a floor or inside a wall. It’s rare for a seller to
12 tolerate that kind of large-scale intrusion even if they are promised that the property
13 will be returned to its original condition.
14
15 3. Ask about home inspection standards. The buyer may wish to verify that the
16 home inspection will be conducted according to the standards of practice established
17 by the National Association of Certified Home Inspectors (NACHI).
18
19 4. Consider a walk-through inspection. The buyer may want to employ the home
20 inspector to accompany them on a final walk-through inspection of the property prior
21 to the actual closing, after the seller’s personal property has been removed from the
22 premises, and any agreed-upon repairs are completed.
23
24 5. Consider an inspection of new construction. Finally, note that even a builder can
25 make mistakes or cut corners to save money, so your buyer might consider having a
26 home inspection of new construction as well.
27
28 The Home Inspection Contract
29
30 Even though the contract for home inspection services is between the buyer and the
31 home inspector, it is the buyer’s responsibility to know what is contained in that contract.
32 However, it would be wise for you to inform the buyer of the scope of a home inspection.
33 You should tell the buyer that it is common for a home inspection contract to exclude certain
34 activities from the general home inspection service.
35 Generally, a standard home inspection contract lists the following exclusions:
36
37 • Wood-destroying organisms (WDO)
38 • Mold, mildew, and fungi
39 • Lead-based paint
40 • Radon gas
41 • Asbestos
42 • Septic tanks
43 • Drinking wells
44 • Docks
45 • Sea walls
46 • Hazardous substances
47
48 The buyer may have to engage the services of separate specialized inspectors, who will
49 then supplement the general home inspector's work.

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1 The Home Inspection

2
3 To ensure a smooth home inspection process, it is crucial that the seller and listing
4 agent cooperate fully with the home inspector. This means that the property should be
5 prepared for the home inspection. This will help you to create your own checklist. It is always
6 recommended to have one. The following suggested items will help the home inspection to
7 proceed expeditiously.
8
9 • Make certain that all utilities are turned on
10 • Make sure that all gas pilot lights, if any, are on
11 • Ensure that all appliances are connected and operable
12 • Remove laundry from washers and dryers
13 • Remove dishes from dishwasher
14 • Remove pots and pans from cooking equipment
15 • Remove objects and dishes from sinks
16 • Clear objects and furniture away from any electrical outlets
17 • Clear access ways to attic hatches and crawl spaces
18 • Clear access ways to heating/air conditioning systems
19 • Clear access ways to hot water heaters
20 • Clear access ways to electrical panel, water, and gas meters
21 • Make certain that all circuit breakers, or fuses, are operable
22 • Make sure all electrical outlets and switches cover plates
23 • Make sure that all smoke and carbon monoxide detectors are operable
24 • Ensure that all remote controls have good batteries and are operable
25 • Replace burned-out light bulbs
26 • Test all window and door locks for proper function
27 • Do a general cleanup of house odors, dirt, and clutter
28 • Do a general cleanup of yard of trash, fallen branches, debris, and animal waste
29 • Disarm alarm systems during inspection
30 • Control children during inspection
31 • Control pets during inspection
32 • Try not to use the water, gas, and electricity during inspection
33 • Provide as much access as possible around storage areas, garages, and basements
34 • Provide inspector with any relevant documentation of repair/replacement work
35 • Provide access through any gates
36 • Provide all keys
37 • Provide access to the home itself at the appointed inspection time
38
39 A general home inspection concentrates on eight areas of the home:
40
41 • Structural elements
42 • Exterior evaluation
43 • Roof and attic
44 • Plumbing
45 • Systems and components
46 • Electrical
47 • Appliances
48 • Garages and storage
49
50 Lenders are particularly interested in two inspection reports. Lenders want to know that
51 the roof is watertight and that the structure is free of wood destroying organisms (WDO).

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1 If you are working with the buyer, be sure that they schedule these inspections and
2 receive the reports in time to meet contract deadlines. An important point to stress with your
3 buyer is that lenders require WDO reports that are no more than 30 days old at time of
4 closing. Because closings often take place more than 30 days after the inspection, you
5 should negotiate with the inspector to provide an updated report that is dated within 20 days
6 of the planned closing. This would allow for a postponement of the closing without incurring
7 the expense of another inspection.
8
9 Anticipate and plan to avoid problems.
10
11 Loan Application
12
13 If the buyer has chosen to finance the purchase,
14 the contract will specify a deadline by which the buyer
15 must submit a loan application. Most sales contracts
16 contain wording that require the buyer to start a loan
17 application within a minimum number of days from the
18 effective date of the sales contract. Failing to meet the
19 deadline constitutes a default by the buyer. If you’re
20 working with the seller, it is your obligation to keep
21 them informed of any buyer default. Of course, if
22 you’re working with a buyer who has been
23 preapproved for a loan, life is less complicated and moving the process along is easier and
24 faster.
25 As part of the loan application and approval process, lenders will order a title report,
26 which consists of three parts: a survey, a physical inspection, and a public records search. If
27 the seller has a survey available from when they purchased, it is possible to order an
28 updated survey from the original surveyor, thereby saving money on the cost of the survey.
29 Once again, this item has all of the payment and access considerations aforementioned with
30 various inspection items. If a survey uncovers any problems or encroachments, then the
31 associate will likely be involved with sellers to help settle any of these matters.
32
33 Earnest Money and Additional Deposits
34
35 While the law doesn’t require an earnest money deposit for a valid real property sale and
36 purchase contract, most real estate professionals understand that a substantial earnest
37 money deposit is very helpful two ways:
38
39 • To convince the seller of the buyer’s earnestness, and
40 • To hold the buyer to their word since backing out of the sale can be costly.
41
42 Experience has shown that transactions with substantial deposits have a higher rate of
43 closing than transactions without substantial deposits.
44 A deposit may be in the form of money, personal property, real property, or anything of
45 value that is capable of being converted into cash. Typically, the deposit is intended to
46 become a partial payment of the purchase price at closing. Postdated checks are
47 considered to be promissory notes and can be accepted as earnest money with the seller’s
48 approval. [F.A.C. 61J2-14.008(1)(a)]
49 Your employing broker is ultimately responsible for the proper handling of any earnest
50 money deposits. However, Florida Real Estate Commission (FREC) rules do not require
51 brokers to maintain escrow accounts. Maintaining an escrow account generates a lot of
52 administrative overhead and requires periodic audits of the brokerage office by the
53 Department of Real Estate (DRE). Many smaller brokerage firms are tending to forego

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1 maintaining an escrow account for these reasons and are opting to use a third party’s
2 account, such as the escrow account of a title company or an attorney.
3 Whether or not your brokerage office maintains an escrow account, FREC rules
4 regarding timely deposits of escrow funds still apply. You are required to deliver any escrow
5 deposit to your broker prior to close of business the next business day. The broker is
6 required to have funds deposited in an escrow account prior to close of business the third
7 business day following the original receipt of the funds.
8 The sale and purchase contract may call for the buyer to make a secondary deposit
9 within a specified number of days from the effective date of the contract. FREC rules on
10 timely deposits apply to the secondary deposits, too. If the buyer fails to deliver funds as
11 specified in the contract, the buyer is in default.
12 FREC rules for placing an escrow deposit with a title company or attorney, F.A.C. 61J2-
13 14.008(2)(6), require the following:
14
15 • The licensee who prepared or presented the sales contract must indicate on the
16 contract the name, address, and telephone number of the title company or attorney
17 that will act as the escrow agent.
18
19 • Within ten business days after each deposit is due under the sales contract, the
20 licensee's broker will make a written request to the title company or attorney to
21 provide written verification of receipt of the deposit.
22
23 • Within ten business days of the date the licensee's broker made the written request
24 for verification of the deposit, the licensee's broker will provide the sellers’ broker
25 with either a copy of the written verification, or, if no verification is received by
26 licensee's broker, written notice that licensee's broker did not receive verification of
27 the deposit. If the sellers are not represented by a broker, then the licensee's broker
28 will notify the sellers directly.
29
30 An effective way to comply with these rules and to simplify the process is to provide the
31 title company or attorney with an appropriate receipt that contains all of the required
32 information when the check is delivered. Then the person who accepts the check needs only
33 to sign it, thereby acknowledging receipt of the check. Experience has shown that title
34 company personnel and attorneys are glad to avoid the work of producing a form, so they
35 will readily sign your receipt. Keep a copy in your files, and make sure that both the buyer
36 and seller receive a copy.
37
38 Choosing the Escrow Agent
39
40 Who chooses the title company or attorney who will hold the escrow funds is often
41 determined by custom in your area or by the agreement between the buyer and seller? For
42 instance, if the custom in your area is for the seller to provide the buyer with a title insurance
43 policy, the seller chooses where to shop based on the idea that the one who pays gets to
44 choose. However, if the contract calls for the buyer to purchase their title insurance, then the
45 buyer would choose the escrow agent. Those who pay, make the choice.
46 Experienced sales associates who are good at planning will usually bring this to the
47 seller’s attention shortly after securing the listing and before getting an offer. This practice
48 will give the seller time to shop for a title-closing agent. An effective way to do this is to
49 provide your seller with a list of three closing agents who you know will do a good job.
50 The closing agent is often one who is in the area where the subject property is located.
51 All title insurance is sold at the promulgated rate, but the charges for doing the closing can
52 vary. Therefore, you need to provide your clients with a list of questions to ask the closers
53 about their charges for handling the closing. Let the sellers pick whom they will use.

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1 On the other hand, if it is likely that the buyer will purchase their own title insurance, give
2 them the list, and ask them to select before they are ready to make an offer. When the buyer
3 makes this choice prior to making any offers, you know to whom the buyer should make
4 their deposits payable. This will cause the title company or attorney to hold the checks from
5 the start of the process and will avoid the hassle of having the checks delivered to the
6 closers just prior to the actual closing. In addition, you’ll have one less item on your checklist
7 to worry about.
8
9 Working with Appraisers
10
11 After developing the comparative market analysis
12 (CMA) that helped your seller to establish a reasonable
13 listing price, you and your seller should feel confident
14 that the negotiated sale price on the signed sale and
15 purchase contract is a good indication of the market
16 value of their property. However, the big question is
17 whether the lender’s appraiser will develop a value for
18 the property equal to or near that value.
19 It is not unusual for the appraiser’s opinion of value to come in lower than the agreed
20 upon sale price, thereby causing some number of transactions to fail. You have no control
21 over these external realities. All you can do is to be aware of them and try to work around
22 and through them.
23 Once an appraiser receives an appraisal assignment, they contact the listing associate
24 to schedule a mutually convenient time to gain access to the subject property to conduct the
25 appraisal. The appraiser inspects the property inside and out to gather information about
26 updates, surrounding area, structural problems, square footage, measurements,
27 improvements, and general condition of the property. Most appraisers both welcome and
28 appreciate any relevant information the listing associate can provide that will help them to
29 formulate their report. If you are the listing associate, you should make every effort to
30 provide the appraiser with detailed information about upgrades, improvements, and
31 condition aspects of the property. Additionally, you could give the appraiser the comparable
32 property data that you used throughout the sales transaction. In addition, the appraiser will
33 be most appreciative if you can furnish copies of a survey and/or floor plan that the sellers
34 might have in their possession.
35 If the appraiser's opinion of value ends up being lower than the sales price agreed to in
36 the sales contract, there could be a big problem with financing. Most standard sales
37 contracts contain a financing clause stipulating that the contract is contingent on the buyer
38 obtaining a loan equal to a stated percentage of the purchase price or a stated dollar
39 amount. Some associates take this a step further to protect their buyers by adding a term
40 stating that the real property must appraise at the sales price or above to prevent a voided
41 sales contract and the return of the escrow funds.
42 If this unfortunate event occurs, you and your seller have several options:
43
44 • You can contact the appraiser and question why they used lower comparable sales
45 data and inquire if any immediate closed sales data could change the outcome. Try
46 to provide additional comparable and pending sales data that supports a higher
47 value. You can call the listing agents of pending sales to try to find out the actual
48 sales price of those properties. Listing agents do not have to disclose the sales price,
49 but many are happy to help because they could find themselves in the same
50 situation.
51
52 • The seller could agree to lower the sales price to the appraised value because they
53 would most likely be presented with similar future appraised valuations if they put
54 their property back on the market.
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1 • The buyer could add additional cash to the offer, reducing the loan to value ratio,
2 which could result in lender approval.
3
4 • The seller could hire a second appraiser to do a second independent appraisal if
5 they are not convinced of the trustworthiness of the first appraisal.
6
7 • The buyer could try another lender with a different appraiser, although there is no
8 guarantee that the new appraisal will produce different results.
9
10 • The seller could make corrections to the property if there were specific defects that
11 had a negative impact on the appraisal results.
12
13 • The seller could offer a second mortgage to the buyer.
14
15 The reality is that you have no control over the appraisal process. All you can do is
16 provide the best information available to the appraiser. Whether the appraiser uses the
17 information is beyond your control.
18
19 Advising Your Buyer About Insurance
20
21 Most likely, the buyer will be responsible for the purchase of a new hazard insurance
22 policy along with any needed insurance coverage riders, such as flood insurance. The
23 associate working with the buyers should advise them to accomplish this task as soon as
24 possible. It is common practice for most insurance carriers operating in Florida to place a
25 moratorium on writing new policies during the period of time any named storm is in the box.
26 The box is a huge geographic area surrounding Florida, the Gulf of Mexico, the Caribbean,
27 and all the islands within many hundreds of miles of our coast. Any named storm that
28 appears within the box could significantly delay a closing, which would probably have a
29 serious impact upon both parties. Once obtained, you need to verify that a copy of the new
30 policy will be forwarded to the closing agent, since the closing agent will have to comply with
31 lender instructions.
32 You need to help your buyer to understand the three types of insurance that they will be
33 dealing with during and after the closing of their property: property, flood, and title insurance.
34
35 Property Insurance
36
37 Lenders require property insurance, which is
38 frequently referred to as homeowner’s insurance, for all
39 homes purchased with financing. Lenders require
40 adequate insurance coverage on the property so that if
41 the home is damaged or destroyed by fire or storm, the
42 insurance will cover the cost to repair or replace the
43 home. These policies usually provide the homeowner with
44 liability coverage to protect the owner if someone is injured on the property.
45 The standard property insurance policy generally includes four types of insurance
46 coverage as outlined below.
47
48 • Structural coverage. The structure coverage includes a deductible amount that the
49 property owner agrees to pay out of pocket, which is subtracted from any insurance
50 claim amount the insurance company pays. Coverage for damage caused by most
51 types of common risks (such as fire, smoke, hail, lightning, vandalism, theft, etc.) has
52 predetermined limits on the dollar amounts the insurer will pay for the repair or
53 replacement.

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1 Although most lenders require that the property owner insure the property for the
2 mortgage amount, the property owner needs to have enough coverage limits for the
3 cost to rebuild the home in the case of a catastrophe.
4
5 • Personal property coverage. Most policies cover the owner’s personal property,
6 which includes the contents of the home, such as furniture, clothing, etc. These items
7 are usually covered, whether stolen or damaged in an insurable event. Typical
8 coverage for personal property is about 50% to 75% of the dollar amount of
9 coverage for the structure.
10 Advise your clients to create a detailed inventory list of their possessions and
11 update it when they make new purchases. They should keep a copy of it offsite, such
12 as in a safety deposit box. Property owners can buy additional coverage called
13 floaters for specific inventoried items, such as fine art, jewelry, guns, furs, etc.
14
15 • Additional living expenses coverage. This part of the coverage provides the
16 necessary funds to pay for alternate accommodations when the property owner is
17 unable to reside in the property during the construction or repair period. The usual
18 coverage for additional living expenses is 20% of the coverage amount for the
19 structure or the coverage may be limited to the actual expenses incurred during a 12-
20 month period.
21
22 • Liability protection coverage. This coverage protects the homeowner against
23 claims, or lawsuits, for bodily injury or property damage that any member of the
24 household caused, unintentionally or negligently, to other people and other property.
25 In addition, this type of coverage allows an injured person to submit medical bills to
26 the property owner's insurance company. In addition, this coverage will pay for both
27 the legal costs of defending a property owner in a court of law as well as any court
28 judgment awards up to the maximum limits stated in the policy.
29
30 Flood Insurance
31
32 Flood insurance, protection from damage due to
33 flooding, is not provided in standard homeowner insurance
34 policies. Flood insurance can be purchased through the
35 Federal Emergency Management Agency (FEMA).
36 To identify a community's flood risk, FEMA conducts a
37 Flood Insurance Study. The study includes statistical data
38 for river flow, storm tides, hydrologic/hydraulic analyses, and rainfall and topographic
39 surveys. FEMA uses this data to create the flood hazard maps that outline different flood
40 risk areas.
41 Floodplains and areas subject to coastal storm surge are shown as high-risk areas or
42 Special Flood Hazard Areas (SFHAs). Some parts of floodplains may experience frequent
43 flooding while others are only affected by severe storms. However, areas directly outside of
44 these high-risk areas may also find themselves at considerable risk.
45 Changing weather patterns, erosion, and development can affect floodplain boundaries.
46 FEMA is currently updating and modernizing the nations Flood Insurance Rate Maps
47 (FIRMS). These digital flood hazard maps provide an official depiction of flood hazards for
48 each community and for properties located within it. Flood insurance rates are based on
49 these flood maps.
50
51 For additional information on flood maps for communities in your area,
52 please visit the FEMA website:
53 www.fema.gov.
54
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1 Congress mandated federally regulated or insured lenders to require flood insurance on

2 properties that are located in areas at high risk of flooding. However, a lender can require
3 flood insurance, even if it is not federally required. In high-risk areas, there is at least a 25%
4 chance of flooding during a 30-year mortgage.
5 As a part of its efforts to keep FEMA financially sound, national legislation was recently
6 passed to increase flood insurance rates to “actuarially sound” levels. This could result in
7 annual flood insurance premium increases as high as 25%. This, combined with changes to
8 the flood maps, is causing flood insurance to be a significant consideration in the purchase
9 and financing of a home.
10 Whether required or optional, if flood insurance is being purchased, advise your buyers
11 not to wait until a storm is on the way. Coverage will not begin until 30 days after they pay
12 for the policy.
13
14 Title Insurance
15
16 Title insurance is indemnity insurance for lenders and
17 property owners for protection against a host of possible
18 legal and/or financial problems that may arise in the
19 purchasing and/or financing of real property. Examples of
20 such occurrences might include undisclosed liens, unpaid
21 tax liens, legal judgments, forgeries, and fraud. There are
22 two separate types of title insurance policies available: one for lenders, and one for property
23 owners. They are normally issued as a package together called a simultaneous issue.
24
25 • Lender’s policy. The lender's (or mortgagee’s) title insurance policy is generally
26 required by all institutional lenders to protect their security interest, or collateral, for a
27 real estate loan and it is issued for the loan amount. The lender usually requires the
28 borrower to pay for this lender's title insurance policy at the loan closing as a
29 requirement to obtain the desired financing. The lender's title insurance policy
30 generally follows any assignment, or transfer, of the mortgage. This means that this
31 lender's title insurance policy is transferable to any purchaser of that mortgage loan if
32 it is sold on the secondary mortgage market.
33
34 • Owner’s policy. The owner's (or mortgagor's) title insurance policy is issued for the
35 purchase price amount and paid for at closing. It is good only for as long as the
36 named insured owns the property; it is not transferable. Any new buyer would have
37 to buy a new owner's title insurance policy. This policy assures the buyer that the title
38 to the property is free from all title defects, liens, and encumbrances except those
39 that are stated as exclusions and exceptions to the coverage. The actual dollar
40 amount paid for the title insurance policy can come from either the buyer or seller; it
41 is a negotiable item in the offer to purchase. Not only do title insurance policies cover
42 against losses from covered claims, but also they contain provisions for coverage of
43 legal fees in defense of such claims. Extended owner's coverage is also available for
44 purchase that covers items such as building permits, covenants, violations of prior
45 owners, incorrect mapping, future encroachments, forgeries, and fraud.
46
47 Unlike other insurance policies, claims, and payouts, the bulk of title insurance premium
48 dollar amounts paid are used upfront to identify and eliminate potential title defects before
49 any title problems occur. The objective is to avoid future claims and pay outs after the fact.
50 Therefore, most title issues are discovered and resolved by title insurance companies before
51 the settlement and closing takes place.

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1 Clearing Contingencies
2
3 Many sale and purchase contracts contain contingencies, usually more than one.
4 Contingencies include:
5
6 • An inspection report to buyer’s satisfaction
7 • An appraisal value equal to or greater than the agreed upon sale price
8 • Financing in the amount specified in the offer
9
10 Contingencies are driven by both the buyer’s desires and the lender’s demands. It is
11 your job to see that contingencies are cleared in a timely manner.
12 Some sale and purchase contracts may contain specific replacement and/or repair
13 contingency requirements that need to be addressed promptly. For example, the contract
14 may call for the resealing of an in-ground swimming pool. Although normally it is the seller’s
15 responsibility to have this work completed, the sales associate working with the seller could
16 help by providing names and phone numbers of contractors who do this kind of work. If the
17 seller is out of town, you may offer to provide the contractors access to the property so they
18 can give estimates to the seller. However, you should not order the work to be done; only
19 the seller should initiate the work. Remember, act responsibly, but do not take on
20 responsibility that is not yours. Good communication is the mark of a professional, so keep
21 all parties informed on the progress of any work to be done. Using a checklist is an effective
22 way to be sure nothing is missed.
23
24 Additional Closing Documentation
25
26 Closing agents require a lot of information to do their job. It is your job to see that the
27 closer receives all the required information with a minimum of problems. The chosen title
28 company will often have a complete checklist of all the information needed. If you get a copy
29 of this checklist early, you can give the parties early notice of what will be required so they
30 can have the information ready when it is needed. Remember, keep thinking ahead, and
31 anticipate needs, both yours and others. Then take action early to meet those needs. Being
32 organized makes life easier. Be sure to provide the closer with all of the information
33 requested. Closers don’t ask for information they don’t need. Failing to give a closer all the
34 information could cause a delay in the closing and a delay in your payday.
35 Most of the information required by the closer includes the following:
36
37 • A copy of the seller’s deed
38 • Previous title insurance policy, if any
39 • Previous property survey
40 • All existing mortgage information for all outstanding financing
41 • The full legal names, marital status, Social Security numbers, and complete contact
42 information for all parties concerned, as well as all possible means of communication
43 • If the property in question is subject to a homeowners’ association or property
44 management firm, the closer will also need complete contact information for these
45 entities
46 • Legible copies of the listing agreement and the sale and purchase contract will be
47 required
48 • Any brokerage transaction fees and brokerage commission structure

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1 Home Warranties
2
3 There are occasions when the seller has various maintenance contracts that cover home
4 appliances, warranties, alarm system monitoring, etc. The question arises as to whether
5 these contracts and warranties are transferable to the buyer. This is something you could
6 suggest to the seller after you secure the listing. This practice gives the seller time to gather
7 the information and make the necessary calls to determine the transferability. Deliver the
8 information to the buyer a few days before closing.
9
10 RESPA REQUIREMENTS
11
12 The Real Estate Settlement Procedures Act (RESPA) is a federal law that was passed
13 by the U.S. Congress in 1974. It has various important requirements that must be met in all
14 financed residential real property sale and purchase transactions. The major purpose of
15 RESPA is consumer protection. RESPA ensures that consumers throughout the nation are
16 provided with more helpful information about the cost of the mortgage settlement and
17 protected from unnecessarily high settlement charges
18 caused by certain abusive practices.
19 RESPA is enforced by the Consumer Financial
20 Protection Bureau (CFPB) per the federal legislation
21 known as the “Dodd-Frank Wall Street Reform and
22 Consumer Protection Act of 2010.”
23 RESPA applies to the following types of purchases:
24
25 • Residential property; one- to four-family homes,
26 cooperatives, and condominiums involving first
27 or second mortgages.
28
29 • Financed by federally related loans; loans that are insured by a federal agency,
30 those that are insured or guaranteed by VA or FHA, HUD-administered loans, or
31 those that are sold to Fannie Mae, Freddie Mac, or Ginnie Mae.
32
33 RESPA does not apply to seller-financed loans or loans made primarily for business,
34 commercial, or agricultural purposes. It also does not apply to a loan assumption unless the
35 lender has changed the terms of the assumed loan or charges more than $50 for the
36 assumption. One of the requirements is that it must be completed and provided to the
37 borrower at least one day prior to closing, if requested.
38 RESPA requirements include all of the following:
39
40 • Lenders must provide a Loan Estimate of settlement costs no later than three
41 business days following the date of the mortgage loan application.
42
43 • Each loan applicant must receive the information booklet titled “Your Home Loan
44 Toolkit,” that explains the various closing charges.
45
46 • The Closing Disclosure must be completed and provided to the borrower at least
47 three days prior to closing.
48
49 • Lenders must provide a mortgage servicing disclosure statement, which discloses to
50 the borrower whether the lender intends to service the loan or transfer it to another
51 lender.

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1 • Kickbacks and rebates are prohibited on any transaction regulated under the
2 provisions of RESPA when a service has not been rendered. For example, an
3 insurance company cannot pay a kickback to a real estate agent or to a lender for
4 referring a client to their agency. Referrals for closing services are strictly prohibited,
5 but referrals between real estate brokers are permitted. Generally, Florida law allows
6 kickbacks and rebates if:
7
8 o A service has been provided
9 o All parties to the transaction have been informed
10 o No other law is being broken, such as RESPA or a licensing law
11
12 THE CLOSING
13
14 When financing has been arranged and title issues, if any, have been resolved, it is
15 appropriate to set the time and place of closing (settlement). The place of closing may have
16 been established when the clients chose the title company. If that is the case then simply
17 arrange a time that is acceptable for all parties, buyers, sellers, and the closing agent. The
18 law does not require buyers and sellers to be present in order to close. It is just a matter of
19 convenience to have both present. However, there are times when it is not convenient to get
20 both parties to the closing table at the same time and there may be occasions when it is not
21 prudent to have both parties together in the same room. If there is any animosity between
22 the parties, it is best to keep them apart. Sometimes the closer may have to arrange a mail
23 away closing to meet the needs of the parties. If one party will be out of town and it would
24 cause great expense or inconvenience to return for the closing, documents can be sent via
25 overnight mail to a real estate attorney who is located near where the party will be and can
26 handle the closing. Real estate attorneys and title closing agents are familiar with the
27 process and can help you coordinate this with your buyers or sellers.
28 In order to speed up the closing process and the disbursement of funds, including your
29 commission, closing agents need to have cleared funds in their account. The funds in
30 question include:
31
32 • The buyer’s earnest money
33 • Secondary deposit (if any)
34 • New bank loan
35 • The buyer’s balance to close (the rest of the down payment)
36
37 Cleared funds means the closer does not want checks
38 delivered on the day of closing, not even bank checks and/or
39 certified checks. There have been several incidents involving
40 forged bank and certified checks. Many closing agents require
41 wire transfers to avoid this problem. Wire transfers take time;
42 sometimes banks need a 24-hour notice. Most of these issues
43 are resolved by using the escrow account of the title company
44 that will handle the closing.

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1 If this is the case, make sure that you have told your buyer to schedule the transfer of
2 funds for the time of closing.
3
4 • Give your buyer the routing number and the account number of the closer’s account.
5 • Ask your buyer to speak with their banker to find out what is needed to schedule the
6 transfer.
7 • Tell the buyer to ask how much lead-time the bank needs to ensure timely delivery of
8 the funds.
9
10 If this is scheduled ahead of time, your buyer may need only to contact the bank to
11 initiate and authorize the pre-arranged transfer. Then all you’ll need to do is review the
12 Closing Disclosure with your buyer, which will show the cash they must have to close.
13 However, if you are still handling the escrow funds by using checks, you must deliver the
14 checks several business days before the date of the closing to allow time for them to clear.
15 However, if you’d like to keep your closers happy, change your procedure and use wire
16 transfers.
17
18 Closing Disclosure
19
20 The transfer of title to real property from the seller to the buyer is conveyed via a deed at
21 the title closing. The closing event itself is where the last of the obligations are met and the
22 last of the promises are kept. This is when the buyer actually makes the purchase and
23 delivers the purchase price, and the seller sell the property and deliver the marketable title
24 through a deed.
25 The closing agent prepares an accounting of all of the expenses that the buyer and
26 seller must pay. There are many costs related to the sale of the property (above-and-beyond
27 the purchase price) that either the seller or buyer have agreed to pay. These are referred to
28 as closing costs.
29 The sale and purchase contract signed by the buyer and seller is the document that
30 controls what happens at the closing, and who pays which costs. The closer uses the
31 contract to develop the numbers that go into the Closing Disclosure.
32
33 Closing Disclosure Explained
34
35 RESPA requires that the Closing Disclosure must be given to the borrower no later than
36 three business days prior to settlement, if requested. The lender is held liable for the
37 accuracy and timing of the buyer’s Closing Disclosure.
38 For this section, please refer to the Closing Disclosure found in the Forms Section of this
39 book. The Closing Disclosure has these significant areas:
40
41 1. Closing Information. This section contains general information about the closing
42 including the parties, the closing date, the sales price, etc.
43
44
45
46
47
48
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1 2. Loan Terms. This section contains information about the loan, including the loan
2 amount, interest rate, payment, pre-payment penalty, and any balloon payment.
3
4
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9
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19 3. Projected Payments. This section includes payment calculations, mortgage
20 insurance information, and estimated taxes, insurance, and assessments.
21
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39 4. Costs at Closing. This section includes the total closing costs and cash to close.
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1 5. Loan Costs. This section includes origination charges, charges for services the
2 borrower shopped for, and costs for services the borrower did not shop for.
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28 6. Other Costs. This section includes taxes and government fees, prepaid items, initial
29 escrow payment due at closing, along with other costs, such as homeowners’
30 association fees, real estate commission, title policy, etc.
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1 7. Calculating Cash to Close. This section compares the cash to close from the Loan
2 Estimate with the actual cash to close from the buyer.
3
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9
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14
15
16 8. Summaries of Transactions. This section summarizes items due from the
17 borrower, items already paid by the borrower, items due to the seller, and items due
18 from the seller at closing, along with items prorated between the parties. The result is
19 the net cash to/from the buyer and to/from the seller.
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1 9. Loan Disclosures. This section provides disclosure of key loan features.

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40 10. Loan Calculations. This section
41 provides a summary of the total of
42 payments, finance charge, amount
43 financed, the APR, and the Total
44 Interest Percentage (TIP).
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1 11. Other Disclosures. This section

2 contains other required disclosures.
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26 12. Contact Information. This section contains contact information for the lender,
27 mortgage broker, real estate brokers, and settlement agent.
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41
42
43
44 13. Confirm Receipt. The last section contains the applicant and co-applicant
45 signatures to confirm receipt of this Closing Disclosure.
46
47
48
49
50
51
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1 Closing Disclosure Proration and Prepayment Computations

2
3 As we mentioned earlier, some expenses are prorated between the parties at the time of
4 closing based on their ownership days for that particular item. You should be competent in
5 verifying the accuracy of the prorated expenses and explaining those items to your clients.
6 The more common types of proration expenses are:
7
8 • Property taxes
9 • Community association fees
10 • Rent (if the purchase is an income-producing property)
11 • Mortgage interest on existing mortgages (applies to subject-to or assumed mortgage
12 purchases)
13 • Utilities and insurance (These are rare but sometimes applicable.)
14
15 It is important to note that we are never calculating the amount that each party owes for
16 any one expense. We are calculating only the prorated share of the one party who owes the
17 money and then giving that amount of money to the other party.
18 Generally, when a seller has not yet paid for an item, and will do so at closing, it is
19 referred to as a debit to the seller and is listed under the Adjustments for Items Paid by
20 Seller in Advance section of the Closing Disclosure. Conversely, if there is a proration for an
21 item which the seller has paid prior to the closing, the seller will receive a credit, and the
22 proration amount will appear under the Adjustments for Items Paid by Seller in Advance
23 section of the Closing Disclosure.
24 For most expenses, closers use an actual calendar, 365-day method for computing the
25 items that need to be prorated. The closer can compute a daily rate for an item by dividing
26 the annual cost by 365 days. Similarly, the closer can compute a daily rate by dividing the
27 monthly cost for an item by the actual days in the month of closing. Once the closer obtains
28 the daily rate, he or she multiplies the daily rate by the number of ownership days of the
29 party that owes the expense. The calculated amount is posted to the Closing Disclosure as
30 a debit to the party who owes the money and a credit to the other party.
31 Proration ownership days are usually counted through the day before the closing as
32 belonging to the seller. The buyer owns the day of closing and thereafter. However, to whom
33 the day of closing might belong, can be a negotiable item in the sales contract and/or
34 determined by local custom in an area and stated accordingly in the sales contract.
35 Some items stated on the Closing Disclosure are a debit to one party only and are
36 referred to as single entries. Typically, these single entries are expenses that only one of the
37 parties to the transaction pays to an outside party (third party, not a participant in the
38 transaction). Those expenses between the two parties to the transaction, with no third party
39 involved, are double entries and most often result in a debit to the seller and a credit to the
40 buyer.
41
42 Property Tax Proration
43
44 In Florida, the tax year is the calendar year (January 1st through December 31st) and
45 property taxes are paid in arrears, which means that the tax is paid after the debt was
46 incurred. Only one tax bill per year is mailed, and that is sent to the owner of record on
47 November 1st.
48 If the closing takes place before November 1st, then the buyer will receive the tax bill for
49 the whole year, even though the buyer did not own the property for the whole year. In this
50 case, the seller is debited and the buyer will be credited with the seller’s prorated share of
51 the tax bill, based on the previous year’s taxes, for the time that the seller had ownership.
52

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1 However, if the closing takes place after November 1st,

and the seller paid the tax bill for
2 the whole year prior to closing, the buyer is debited and the seller will be credited with the
3 buyer’s prorated share of the tax bill.
4 Remember, prorated expenses between the buyer and seller are always stated as
5 double entries.
6 If the seller paid the taxes prior to closing, the entries would be on page 3 of the Closing
7 Disclosure under the section titled Summaries of Transactions, Adjustments for Items Paid
8 by Seller in Advance, as a debit to the buyer and a credit to the seller. The entries would be
9 this way because the seller paid the taxes for the full year and the buyer must reimburse
10 them for the portion of the taxes that are the buyer’s responsibility.
11
12 BORROWER’S TRANSACTION (debit the buyer) SELLER’S TRANSACTION (credit the seller)
13
14
15
16
17
18 The reverse would be true, the double entry would be a debit to the seller, and a credit to
19 the buyer, if the seller did not pay the taxes by the closing date and the buyer must pay the
20 full tax bill when it is issued. In this case, the entries would be listed on page 3 of the Closing
21 Disclosure, in the section titled Adjustments for Items Unpaid by Seller, shown below.
22
23 BORROWER’S TRANSACTION (debit the buyer) SELLER’S TRANSACTION (credit the seller)
24
25
26
27
28
29 Example: Calculating property tax prorations.
30
31 If the prior year’s annual property taxes for a property was $1,000, and the closing is
32 on May 3rd with the day of closing allocated to the seller, what is the amount of the tax
33 proration using the 365-day method?
34
35 Step 1 Calculate the number of days the seller has owned the property.
36
37 31 Days in January
38 28 Days in February
39 31 Days in March
40 30 Days in April
41 + 3 Days in May
42 123 Days of seller ownership
43
44
45 Step 2 Calculate the daily tax amount and multiply by the number of days of seller
46 ownership to find the amount of tax owed by the seller to the buyer for the
47 time they owned the property.
48
49 ($1,000 Taxes ÷ 365 Days) x 123 Seller days = $336.99 Owed by seller
50
51 Tip: To avoid rounding errors, use your calculator to do the calculation in one-step by
52 entering “1000 ÷ 365 x 123” and then pressing “=”

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1 Step 3 Entries on the Closing Disclosure: $336.99 debit seller;

2 $336.99 credit buyer
3
4 BORROWER’S TRANSACTION (debit the buyer) SELLER’S TRANSACTION (credit the seller)
5
6 $336.99 $336.99
7
8
9
10 Community Association Monthly Fee Proration
11
12 In property tax proration, the starting point is the yearly property tax amount. In the case
13 of community association fee proration, the starting point is the community association fee
14 as a monthly expense. So, the daily rate for community association monthly fee proration
15 computations is obtained by dividing that monthly fee by the number of actual days in the
16 month of closing. In the example below, we will assume that the seller has paid the
17 community association monthly fee on the first of the month.
18
19 Note: Some communities will charge their fees quarterly or even annually in advance.
20
21 Example: Calculating a community association monthly fee proration.
22
23 If the monthly community association fee is $200.00, and the closing is on July 20th
24 with the day of closing allocated to the seller, what is the amount of the community
25 association fee proration that the buyer owes?
26
27
28 Step 1 Calculate the number of days that the buyer owns the property.
29
30 31 Days in July
31 - 20 Day of closing
32 11 Days buyer owns property
33
34 Step 2 Calculate the daily rate of the association fee and multiply by the number of
35 days the fee is owed by the buyer.
36
37 ($200.00 monthly fee ÷ 31 Days) x 11 Days = $70.97 owed by buyer
38
39 Tip: To avoid rounding errors, use your calculator to do the calculation in one-step by
40 entering “200 ÷ 31 x 11” and then pressing “=”
41
42
43 Step 3 Entries on the Closing Disclosure: Debit the buyer $70.97; credit the seller
44 $70.97. The entries should be placed in the section for Adjustments for Items
45 Paid by Seller in Advance.
46
47 BORROWER’S TRANSACTION (debit the buyer) SELLER’S TRANSACTION (credit the seller)
48
49
50
HOA Dues July 1 to July 20 $70.97 $70.97
51

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1 Rent Proration
2
3 In the case where the property is occupied by a renter, rent proration applies.
4 Rent proration calculations are similar to community association monthly fee proration
5 computations. The situation is that the seller, who is the current property owner and
6 landlord, collected the rent from the tenant on the first of the month. The buyer will be the
7 new property owner and will be responsible for the property beginning on the day of closing.
8 Therefore, the buyer is entitled to a portion of the rent amount that was paid for the month.
9 When prorating, use the actual number of days that the buyer owns the property for the
10 closing month. You are not calculating the amount of rent the seller gets to keep; you are
11 calculating the amount of rent the seller owes the buyer. The resulting calculation will be a
12 debit to the seller (Section N, Due from Seller at Closing) and a credit to the buyer (Section
13 L, Paid by or on Behalf of Borrower at Closing).
14
15 Example: Calculating a rent proration.
16
17 If the monthly rent is $850.00 payable on the first of the month, and the closing is on
18 September 14th with the day of closing allocated to the seller, what is the amount of the
19 rent proration that the seller owes?
20
21
22 Step 1 Calculate the number of days that the buyer owns the property.
23
24 30 Days in September
25 - 14 Day of closing
26 16 Days buyer owns property
27
28
29 Step 2 Calculate the daily rate of the rent and multiply by the number of days the
30 buyer owns the property to find the amount owed by the seller to the buyer for
31 the rent already collected.
32
33 ($850 monthly rent ÷ 30 Days) x 16 Buyer days = $453.33 Owed by seller
34
35
36 Step 3 Entries on the Closing Disclosure: Debit the seller $453.33; credit the buyer:
37 $453.33. This type of entry usually appears on page 3 in Sections L and N.
38
39 BORROWER’S TRANSACTION (debit the buyer) SELLER’S TRANSACTION (credit the seller)
40
41
42
43
44 Rent Proration - Sept. 15 to Sept. 30 $453.33
45 Rent Proration - Sept. 15 to Sept. 30 $453.33

46
47
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1 Existing Mortgage Interest Proration

2
3 After the savings and loan crises of the late 1980’s and early 1990’s, most FHA and VA
4 mortgage loans contain a due-on-sale clause that prevents a buyer from taking over the
5 payments when they buy the property. However, some loans do not have this clause, such
6 as VA loans. This presents the possibility of a buyer being financed, even if a lender is
7 reluctant to lend to them. If the seller has a loan without a due-on-sale clause, the buyer
8 may want to take over the payments with either the “subject to,” or “assumption of” method.
9 “Subject to” means that the buyer acknowledges the fact that the home they are buying
10 has a lien against it, but the buyer does not accept any personal legal responsibility for the
11 repayment of that debt. The buyer and the seller have privately contracted for this “subject
12 to” purchase arrangement. If the buyer does not pay the loan, the lender may foreclose, and
13 the buyer will lose the home. However, if the lender does not receive sufficient money from
14 the foreclosure to satisfy the debt, the buyer cannot be held responsible. The lender would
15 have to sue the seller based on the note they signed when the loan was originated. The
16 seller is the only party who has a legal relationship and obligation with that lender. Thus, a
17 “subject to” purchase is different from an assumed mortgage purchase with very different
18 legal ramifications.
19 Whether it is a “subject to” or assumed mortgage, the method for calculating the
20 proration is the same.
21 Interest on loans is usually paid in arrears and would need to be prorated between the
22 buyer and seller for the month of the closing. As with other prorations we’ve discussed, the
23 seller is responsible for the interest on the loan up to the day of closing and the buyer is
24 responsible for the interest from the day of closing onward. This requires a debit to the seller
25 for their portion of the interest and a credit of that amount to the buyer. So, when the buyer
26 makes the next monthly mortgage payment, they have the seller’s portion of the interest due
27 with that payment.
28 No principal reduction in the loan balance is prorated because the buyer is making a
29 subject to or assumed purchase based upon the loan balance at the time of closing. Any
30 principal reduction in that loan balance resulting from the buyer’s mortgage payment on the
31 first of the month following the closing rightfully belongs to the buyer.
32
33 Example: Calculating interest proration for a “subject to” or assumed mortgage.
34
35 If the monthly interest for the existing mortgage for the month of closing is $498.75,
36 and the closing is on May 17th with the day of closing allocated to the seller, what is the
37 amount of the interest proration that the seller owes?
38
39 Step 1 The seller owns the property for 17 days in May.
40
41
42 Step 2 Calculate the daily interest rate and multiply by the number of days the seller
43 owns the property/loan to find the interest amount that the seller owes the
44 buyer.
45
46 ($498.75 Interest ÷ 31 Days) x 17 Seller days = $273.51 Owed by seller
47

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1
2 Step 3 Entries on the Closing Disclosure: Debit the seller $273.51; credit the buyer
3 $273.51. This type of entry usually appears on page 3 in Sections L and N.
4
5 BORROWER’S TRANSACTION (debit the buyer) SELLER’S TRANSACTION (credit the seller)
6
7
8 $273.51 $273.51
9
10
11
12
13
14
15
16 Prepayment of Mortgage Interest Computations
17
18 Prepayment computations are involved in any transaction that involves a new loan. If the
19 buyer finances the purchase of a property with a new loan, they have to pay the lender for
20 the use of the money beginning on the day of closing through the last day of the month.
21
22 Example:
23
24 If closing is on May 14th, the borrower would not make the first loan payment on June
25 1st,but rather on July 1st. Since interest is paid in arrears (after the fact), the July 1st
26 payment would include the interest on the new loan for the month of June.
27 However, the bank loaned the money to the borrower on May 14th, and it wants the
28 interest on that money for the period of May 14th through May 31st. Hence, the lender
29 expects a prepayment of interest that must be paid at the time of closing.
30 In the case of interest prepayment, the day of closing must be included in the
31 number of days that the borrower has the use of the money. In this example, the
32 borrower had the use of that money for 18 days in May.
33
34
35
36
37
38
39
40
41
42 Note: This is not a prorating problem between the buyer and the seller because the
43 seller is not involved (unless the seller is the lender in a purchase money mortgage
44 situation). This is between the buyer/borrower and the lender.

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1 Prepayment of mortgage interest on a new loan to a lender is a one-time payment that is

2 based upon simple interest. The lender uses a 365-day method to calculate the interest due.
3 The lender multiplies the loan amount by the stated annual interest rate and divides by 365
4 to get the daily rate.
5
6 Example: Calculating prepayment of mortgage interest.
7
8 If the interest rate is 12% on a $120,000 mortgage loan, and the closing is on
9 December 10th, what is the amount of the interest that they buyer owes the lender on the
10 day of closing?
11
12 Step 1 Calculate the number of days for which the buyer owes interest to the lender.
13 31 Days in December
14 - 10 Day of closing
15 21 Days of interest due = 22 (21+1 = 22 since the buyer owes
16 interest for the day of closing.)
17
18 Step 2 Calculate the annual interest amount on the loan.
19
20 $120,000 Mortgage loan amount
21 x 0.12 Annual interest rate on the loan
22 $14,400 Annual interest amount on the loan
23
24 Step 3 Calculate the daily interest amount due and multiply by the number of days
25 that the buyer owes interest to find the interest amount due to the lender from
26 the buyer.
27
28 ($14,400 Interest ÷ 365 Days) = $39.45 Interest per day (rounded)
29
30 ($14,400 Interest ÷ 365 Days) x 22 Days = $867.95 Owed to lender
31
32 Step 4 Entries on the Closing Disclosure: Debit the buyer $867.95.
33 This is a single entry on page 2 in the section titled Other Costs, F. Prepaids.
34
35
36
37
38
39
40
41 $39.45 12/10 12/31 $867.95
42
43
44
45
46

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1 Prepayment of Escrow Item

2
3 Along with prepayments of interest, the buyer might have to fund escrow accounts that
4 the lender maintains on their behalf to pay for certain items when they come due.
5 Institutional lenders typically require an escrow fund be established if the loan-to-value
6 (LTV) is greater than 80%. This fund covers payment of property taxes, hazard insurance,
7 mortgage insurance, and community association fees. The buyer is required to deposit
8 sufficient funds to ensure the escrow account has enough money to pay the aforementioned
9 costs as they come due. This is not a proration. It is a prepayment. The amount of the
10 prepayment varies depending on the time of year the loan is closed.
11 The escrow funds for prepayment of property taxes is collected as follows:
12
13 • Escrow of the seller’s share of the taxes at closing. The seller’s share of the
14 taxes up until closing must be escrowed so that the funds exist for later payment of
15 the tax bill by the lender. The buyer must deposit this amount in escrow at closing.
16 However, this is really a “wash” to the buyer since the taxes owed by the seller will
17 be credited to the buyer for the property tax proration shown earlier in this chapter.
18
19 • Additional escrow required by the lender. Lenders often want buyers to pay three
20 months of taxes in advance to insure that there is money to pay the taxes if the buyer
21 does not make their monthly payments. For other items, two months in advance is
22 usually enough. The buyer must deposit this amount in escrow at closing.
23
24 • Ongoing monthly escrow of buyer’s share of the taxes. Once the escrow fund is
25 established at closing, the lender adds 1/12 of the annual expense for each escrow
26 item to the buyer’s monthly mortgage payment. These are called budget mortgages.
27
28 Example: Calculating prepayment of three months property tax for escrow.
29
30 The estimated property taxes for the year are $2,526.00, and the closing is on May
31 12th.The lender wants an extra three months of taxes for the startup escrow account.
32 What is the amount that the buyer must provide as a deposit into the escrow account on
33 the day of closing?
34
35
36 Step 1 Calculate the number of months for which the buyer needs to deposit
37 property tax prepayments.
38
39 5 May is the 5th month of the year (January through May)
40 + 3 Number of months required by lender
41 8 Number of months of property tax prepayments
42
43 Step 2 Calculate the monthly property tax rate.
44
45 $2,526 estimated property tax ÷ 12 months = $210.50 per month
46
47 Note: Starting with the first mortgage payment, the buyer’s monthly
48 mortgage payment will include an additional $210.50 per month for the
49 escrow of property tax.

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1
2 Step 3 Calculate the amount of property taxes the buyer must deposit into escrow for
3 the lender.
4
5 8 Number of months of property tax payments
6 x $210.50 Monthly property tax rate
7 $1,684.00 Amount of property tax to deposit into escrow
8
9 Step 4 Entries on the Closing Disclosure: Debit the buyer $1,684.00.
10 This is a single entry on page 2 in Section F. Prepaids, under Other Costs.
11
12
13
14
15
16
17
18
19
20 8 $1,684.00

21
22
23
24
25
26 Note: As discussed earlier in this chapter, the property tax is prorated. So there will also
27 be a seller debit and a buyer credit for the seller’s share of the taxes from January 1st to May
28 12th, since that portion of the taxes are the seller’s responsibility.
29
30 State Transfer Taxes
31
32 The State of Florida generates revenue from all real property transfers by taxing new
33 deeds and taxing all new loan documents, such as mortgage liens and mortgage notes.
34 Originally, buyers had to purchase stamps, similar to postage stamps, which were
35 attached to the document to show that the appropriate tax had been paid. Today, a rubber
36 stamp is used to imprint on the document that the tax has been paid, and the amount of the
37 tax is written in the space provided. Even though actual stamps are no longer purchased,
38 the tax is still referred to as a stamp tax. However, today, we speak in terms of units rather
39 than stamps.
40 There are three types of taxes:
41
42 • Stamp tax on a new deed. Before a deed can be recorded in the public records,
43 documentary stamps must be purchased and affixed to the deed. Stamps are
44 purchased from the clerk of the circuit court, usually when the deed is presented for
45 recordation. Currently, the tax on the deed is calculated at the rate of $.70 per $100
46 of value, or fractional part thereof, based on the sales price of the property (the tax
47 rate in Dade County only is $.60 rather than $.70). In the absence of any agreement
48 to the contrary, the seller is responsible for the payment of this tax.

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1 • Intangible tax on new mortgage liens. The state intangible tax on mortgages is
2 paid on all new mortgages only. The state intangible tax on a mortgage is calculated
3 at the rate of 2 mills (.002) on the total amount of a new mortgage. The tax is not
4 payable when a mortgage is being assumed or title to the property is taken subject
5 to the mortgage. The buyer usually pays this tax. The tax is collected when
6 mortgage documents are recorded in the public record.
7
8 • Stamp tax on new notes. The state documentary stamp tax on a promissory note
9 is calculated at the rate of $0.35 per $100 or fractional part thereof on the total
10 amount of the note. The state documentary stamp tax on the note is paid on both
11 new and assumed notes. This tax is not payable if title is taken subject to the
12 mortgage. The buyer usually pays this tax.
13
14
15 TAXES PAYABLE IN REAL ESTATE CLOSINGS
16
Usually Paid by: Seller Buyer Buyer
17 State Documentary State Documentary Intangible Tax
18 Tax
Stamp Tax on Deeds Stamp Tax on Notes on Mortgages
19
Tax rate .70/$100* .35/$100 .002
20
21 Applies when
purchased for cash ✓
22
Purchased subject
23
to a mortgage ✓
24
Purchased with
25
an assumed loan ✓ ✓
26
27 Purchased with
28 a new loan ✓ ✓ ✓
29
30 * This tax is calculated at the rate of .60/$100 or fractional part thereof in Miami-Dade County only.
31
32 It is important to note that the taxes are due only on new documents at the time they are
33 created, and the taxes are never charged twice for the same document.
34 When the buyer assumes an existing loan, they sign a new note to take over the
35 responsibility for the debt. Signing this new note incurs the tax on new notes because a new
36 note was created, but not an intangible tax because no new lien was created and given to
37 the lender. The lien the lender received when the original loan was created is still valid and
38 does not have to be replaced. The lien is on the property, not on the person who borrowed
39 the money.
40 However, if the buyer buys the property subject to the existing loan, no new documents
41 are created. Therefore, no new intangible or tax on new note taxes are incurred.
42
43 State Documentary Stamp Tax on Deed
44
45 The transfer tax on real property is $0.70 per $100 of value or fraction thereof. The
46 formula is sale price divided by $100 to get the number of units. Since the law states “or
47 fraction thereof,” you must round the number of units up to the next whole unit (never round
48 down), and then multiply by $0.70.
49 Note: In Miami-Dade County only, per Florida legislative mandate, this tax is $0.60 per
50 whole unit for the transfer of a single-family residence, and a rate of $0.60 plus $0.45 surtax
51 for transfers of any real property other than a single-family residence.

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1 Example: Calculating documentary stamp tax on deed.

2
3 If the buyer purchases a home for $148,610 in Broward County, what is the
4 documentary stamp tax on the deed amount that they owe?
5
6 Step 1 Calculate the number of tax units.
7
8 $148,610 sales price ÷ $100 = 1,486.1 units
9
10 Step 2 Round up to the next whole number, if applicable.
11
12 Since the division resulted in a decimal, round up to the nearest whole unit. In
13 this case, round up to 1,487 whole units.
14
15 Step 3 Calculate the documentary stamp tax amount on the deed.
16
17 1,487 Whole units
18 x $0.70 Transfer tax rate
19 $1,040.90 Documentary stamp tax amount on deed
20
21 Step 4 Entries on the Closing Disclosure: Debit the seller $1,040.90
22 This is a single entry on page 2 in section Other Costs, E. Taxes and Other
23 Government Fees. (See “Example: Calculating documentary stamp tax on a
24 new mortgage, Step 4” for the completed form example.)
25
26 Intangible Tax on New Mortgage Liens
27
28 The tax on all new mortgage liens is 2 Mills, or .002 times any new mortgage amount.
29 Note: You do not need to divide by $100 or rounding up. This is a straight multiplication
30 calculation.
31
32 Example: Calculating intangible tax on a new mortgage lien.
33
34 If the buyer receives a mortgage for $276,000, what is the intangible tax amount on
35 their new mortgage?
36
37
38 Step 1 Calculate the intangible tax amount
39
40 $276,000 New mortgage amount
41 x .002 Intangible tax rate
42 $552.00 Intangible amount on new mortgage
43
44 Step 2 Entries on the Closing Disclosure: Debit the buyer $552.00
45 This is a single entry on page 2 in section Other Costs, E. Taxes and Other
46 Government Fees. (See “Example: Calculating documentary stamp tax on a
47 new mortgage, Step 4” for the completed form example.)
48
49 Documentary Stamp Tax on New Mortgage Notes
50
51 This tax applies to all new loans and all assumed loans. Remember, when a buyer
52 assumes a loan, they sign a new note. Loans can only be assumed if the original loan does
53 not have a due-on-sale clause, or when the lender grants permission for the buyer to
54 assume the existing loan.
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1 This calculation is similar to the tax on new deeds. The only difference is the tax amount
2 is $0.35 per $100 or fraction thereof.
3
4 Example: Calculating documentary stamp tax on a new mortgage.
5
6 If the buyer receives a mortgage for $276,610, what is the documentary stamp tax on
7 their new mortgage?
8
9
10 Step 1 Calculate the number of tax units.
11
12 $276,610 new mortgage amount ÷ $100 = 2,766.1 units
13
14 Step 2 Round up to the next whole number, if applicable.
15
16 Since the division resulted in a decimal, round up to the nearest whole unit. In
17 this case, round up to 2,767 whole units
18
19 Step 3 Calculate the documentary stamp tax.
20
21 2,767 Whole units
22 x $0.35 Transfer tax rate on new note
23 $968.45 Documentary stamp tax amount on new note
24
25 Step 4 Entries on the Closing Disclosure: Debit the buyer $968.45
26 This is a single entry on page 2 in Section E. Taxes and Other Government
27 Fees, shown below with all of the state transfer taxes from the previous
28 examples.
29
30
31
32
33 $968.45 $552.00 $1,520.45 $1,040.90

34
35
36 Remember, if the buyer purchases the property subject to the existing mortgage and
37 there is a lien remaining on the property, then this tax does not apply since no new
38 documents were created.
39
40 Review the Closing Disclosure
41
42 As discussed earlier, RESPA requires lenders to provide borrowers with a completed
43 Closing Disclosure form at least three days prior to closing. With recent changes, lenders
44 will now prepare the Closing Disclosure, whereas in the past, the HUD-1 was prepared by
45 the closing agent. As a result, closings may take longer, and more lead-time for money
46 transfers will need to be scheduled.
47 If you think there is something amiss when you review the Closing Disclosure, you
48 should call the lender to review any suspected errors and/or omissions for possible
49 correction. The lender will determine if any corrections are necessary according to
50 applicable laws and lender instructions.

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1 If you represent the seller, you should compare the numbers on the seller’s side of the
2 Closing Disclosure with the initial estimate of the seller’s net sale proceeds and prepare to
3 explain any differences to them.
4 Once you have verified the information on the Closing Disclosure, you should meet with
5 your buyer or seller to review it with them. It is considered unprofessional to allow your client
6 to go to a closing without having seen the Closing Disclosure beforehand. Many documents
7 need to be signed at the closing. Closings are for signing, not for reading.
8 Your job is to review and explain the numbers to them. This is perhaps the largest
9 transaction of their lives and they may view it with trepidation. They need to be assured that
10 the numbers are correct and that you, their professional, are looking out for their interest.
11 Your buyer or seller will have questions about the Closing Disclosure. You may be able to
12 reduce their stress by answering their questions professionally and satisfactorily. If you can’t
13 answer the questions, their level of anxiety may rise. This is the time to know what you are
14 talking about and show your professionalism and level of expertise.
15 Buyers are typically concerned with the amount of funds necessary to close, and sellers
16 are usually concerned with the amount of funds they will receive at closing. Find these
17 numbers in advance and make sure that you can explain each of the numbers.
18 The buyer and seller will look for their respective numbers at the closing. If the number
19 they see is the number they expect, the signing will begin and the closing will go smoothly. If
20 not, there could be some delays.
21
22 Pre-Closing (Walk-Through) Inspections
23
24 Prior to the settlement, you should schedule and coordinate a pre-closing (or walk-
25 through) inspection of the property with the buyer. The purpose of this pre-closing inspection
26 is fivefold:
27
28 1. To confirm that the seller has vacated the property, and that it is ready for occupancy
29
30 2. To determine that the seller did not damage the property during their move
31
32 3. To verify that any personal property included in the sale and purchase contract is
33 there
34
35 4. To make sure that repairs and/or maintenance that the sellers may have agreed to
36 perform before the settlement have been completed
37
38 5. To ensure that the property has been maintained in the same condition as it was on
39 the effective date of the sales contract, allowing for any reasonable wear and tear
40 during the interim period
41
42 Remember, you are not an inspector. If any work needs to be inspected, it should be
43 done prior to the walk-through by a qualified inspector. Do not assume responsibility for this.
44 It is recommended that you have the buyer sign a pre-closing inspection clearance form that
45 states their satisfaction with the above items on that date. This is a good opportunity to
46 retrieve your lockbox so you will have a key to deliver to the buyer at the closing.

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1 Closing Day
2
3 When all of the pre-closing tasks have been
4 completed properly, the closing may proceed. There are
5 actually two closings taking place: the buyer closes on
6 their loan, and the buyer and seller close on title to the
7 property.
8 At the actual closing, each party signs all of the
9 respective documents. If any financing is involved, the
10 closing agent forwards the borrower-signed documents to the lender for approval. Once the
11 closing agent receives the lender's approval, they may disburse the funds in accordance
12 with the Closing Disclosure.
13 At the closing, you should obtain a fully signed Closing Disclosure and the brokerage
14 sales commission checks from the closing agent to be delivered to your employing broker.
15 Check your company policy and procedures manual regarding what copies to make and
16 what you need to close the file on this transaction. Any keys you may have to the property
17 should be given to the buyer.
18
19 AFTER THE CLOSING
20
21 Your post-closing activities may include:
22
23 • Change the status of the listing in the MLS from Pending to Closed.
24
25 • Arrange for the removal of your sign and your lockbox, unless you did that during the
26 walk-through inspection.
27
28 • Write a thank you note to your client and schedule a follow-up visit. The purpose of
29 the visit is to ensure customer satisfaction, offer help in any matters related to the
30 sale, and receive feedback on your services. Remember to ask that they refer friends
31 who need real estate services to you.
32
33 After the closing day has passed and everything is in order, remember to check through
34 the pending file for this transaction to be sure that it contains copies of all documents
35 created throughout this process, including the signed Closing Disclosure form and any other
36 applicable documents from the closing. If your broker’s office policy requires that you fill out
37 any final forms, complete that paperwork, and close the file.
38 Remember that Florida requires all brokers to maintain their transaction files for at least
39 five years and for at least two years after the end of any litigation, whichever occurs later.

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CHAPTER 9 REVIEW QUESTIONS

1. A is important to schedule, track, and make sure all

necessary items are completed on time. The checklist should include items such as
changing the status, submitting the to the lender,
ordering any , and tracking any that need to be
cleared.
2. A general home inspection concentrates on the following area of the home:
elements, evaluation, and , ,
systems and components, , , and
and storage.
3. As part of the loan application and approval process, lenders will order a ,
which consists of three parts: a , a physical , and a search.
4. Many brokerage firms do not maintain an escrow account; instead, they opt to use the
escrow account of a or an .
5. FREC rules require a sales associate to deliver any escrow deposit to the prior
to the close of business on the business day. The broker is required to have the
funds deposited prior to the close of business on the business day following the
of the funds.
6. Whichever party pays for the chooses the escrow agent.
7. You need to help your buyer understand the three types of insurance that they will be
dealing with during and after closing: , , and
insurance.
8. The standard property insurance policy generally includes four types of insurance
coverage: coverage for the , property, additional
while repair work is done, and protection.
9. The lender usually requires the to pay for the lender's title insurance
policy at the loan closing as a requirement to obtain the desired financing.
10. Information required by the closing agent includes: a copy of the seller’s ,
previous policy and property , all existing for
outstanding financing, identification and contact information for all parties, copies of the
and , and brokerage and structure.
11. To speed up the closing process and disbursement of funds, closing agents need
funds in their account, including the buyer’s , any secondary deposits,
the new , and the buyer’s balance to close.
12. The section of the Closing Disclosure specifies the adjustments between
the two parties for items either paid by the seller in advance or unpaid by the seller at
settlement, based on ownership days.
13. entries on the Closing Disclosure are expenses that only one party pays to an
outside party, as in a debit to a lender. entries are expenses between the
two parties as a credit and a debit.
14. If the community association monthly fee is $250.00 and the closing date is August 23rd,
the prorated amount of $ is a debit to the and a credit to the .
15. requires lenders to provide the Closing Disclosure to the borrower at least
days prior to closing. The is held liable for the
accuracy and timing of the buyer’s Closing Disclosure.

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CHAPTER 9 PRACTICE EXAM

1. The estimated property tax for a 5. A buyer may want a home inspection,
home that is closing on March 11th is or it may be required by the lender.
$1,414.63 per year. How would the Which statement is NOT correct?
prorated taxes appear on the Closing a. It is best to choose a home inspector
Disclosure if the day of closing is who also performs repairs, since
paid by the buyer? they can quickly be hired to resolve
a. Debit the buyer $267.42; credit the any problems.
seller $267.42 b. Home inspectors must be licensed
b. Debit the seller $1,147.21; credit the by the Florida Department of
buyer $1,147.21 Business and Professional
c. Debit the seller $267.42; credit the Regulation (DBPR).
buyer $267.42 c. Inspection is limited to what can be
d. Debit the buyer $1,147.21; credit the easily observed and may not detect
seller $1,147.21 problems that are inside walls or
under floors.
2. Which of the following is NOT a d. A standard home inspection may not
purpose of a pre-closing inspection? include termite or mold inspection,
a. To determine that a seller has not which requires a separately specially
damaged the property during his or licensed inspector.
her move
b. To confirm that the seller has 6. What type of insurance coverage
vacated the property allows an injured person to submit
c. To confirm that any personal medical bills to the property owner's
property that is included in the insurance company?
purchase is present a. Coverage for personal property
d. To determine that the lot number, b. Coverage for the structure
mailing address and/or legal property c. Coverage for treatment
description is accurate d. Coverage for liability protection

3. What is the intangible tax rate on all 7. How often is a buyer required to
new mortgage liens? prepay the mortgage loan interest?
a. .004 times any new mortgage a. Monthly, over the life of the loan
amount b. Quarterly, over the life of the loan
b. .022 times any new mortgage c. Yearly, over the life of the loan
amount d. One time, at closing
c. .002 times any new mortgage
amount 8. Which type of loan agreement
d. .02 times any new mortgage amount between the seller and the buyer
allows for the least amount of liability
4. Which statement is true regarding the for the buyer?
owner's title insurance policy? a. Assumption of
a. It is transferable. b. Subject to
b. It is recorded with the deed. c. Secondary mortgage
c. It must be renewed every five years. d. Co-sign mortgage
d. It is not transferable.

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9. How many days should you use to 13. If the appraiser’s opinion of value is
determine the amount of buyer credit lower than the contracted sales price,
when prorating rental income? you and the seller can take actions
a. The total number of days for the that could resolve a resulting
month prior to closing financing problem. Which action
b. The total number of days for the would be least likely to help resolve
closing month the problem?
c. The actual number of days that the a. Provide additional comparable and
buyer owns the property for the pending sales data to the appraiser
closing month that supports a higher sales price.
d. The actual number of days that the b. Ask the seller or the lender to hire a
seller owns the property for the different appraiser to try to get a
closing month significant change in the appraisal
results.
10. What amount is charged for the c. Negotiate a lower sales price with
Florida State Documentary Stamp Tax the seller to match the appraisal
on a deed (outside of Miami-Dade value.
County)? d. Negotiate with the seller to correct
a. $0.35 per $100 of value or fraction the problems or deficiencies with the
thereof. property that caused the low
b. $0.70 per $100 of value or fraction appraisal.
thereof.
c. $0.70 per $1000 of value or fraction 14. What is the purpose of the Closing
thereof. Disclosure?
d. $0.002 per $100. a. To designate which party pays for
the title insurance
11. Which statement is true regarding the b. To assign a closing date
tax year in Florida? c. To prorate expenses between buyers
a. It is the calendar year and taxes are and sellers
paid in arrears. d. To include all documents to be
b. It starts April 15th and taxes are paid signed at closing
in arrears.
c. It starts April 15th and taxes are paid 15. How much is charged for the stamp
in advance. tax on the deed for real property that
d. It starts November 1st and taxes are is sold for $210,000 in Palm Beach
paid in advance. County?
a. $735
12. What is the purpose of the Real b. $420
Estate Settlement Procedures Act c. $7,350
(RESPA)? d. $1,470
a. To inform consumers regarding the
real estate licensee’s relationship
and duties to the buyer and/or seller
b. To protect borrowers against
fraudulent lending practices with
seller-financed loans
c. To protect borrowers from abusive
loan settlement costs and provide
borrowers with helpful information on
loan costs
d. To assist sellers and buyers with
resolution of escrow disputes

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 CHAPTER

FORECLOSURES, SHORT
SALES, AND AUCTIONS
OVERVIEW Lenders take certain risks when they issue mortgage loans to
borrowers. One of the most important risks in making a mortgage
loan is that the borrower will default on the note in some way. When
this happens, the lender may not receive the expected mortgage
payments.
A mortgage default can result from any breach of the mortgage
contract. The most common default is the failure to meet an
installment payment of the interest and principal on the note. Default
can also occur if a homeowner fails to pay taxes when they are due
or neglects to pay hazard insurance premiums.
Most loan agreements stipulate the penalties that will occur if the
borrower defaults. The most common penalty is the foreclosure of the
property by the lender. Many lenders, however, prefer to avoid
foreclosure if possible, so they will consider options. In this chapter,
we discuss the foreclosure process, as well as the alternative a
lender might consider to avoid foreclosure.

OBJECTIVES After completing this chapter, you should be able to do all of the
following:

• List and define several alternatives to foreclosure

• Discuss the deed in lieu of foreclosure
• Explain how to handle a short sale transaction
• Describe the foreclosure process
• Discuss the three types of auctions and common auction
terms

1 FORECLOSURE ALTERNATIVES
2
3 Even though most mortgage contracts outline penalties that occur for any breach of
4 contract, many lenders prefer to follow a procedure that prevents a foreclosure. Before
5 considering any foreclosure action, a lender considers the amount of the borrower’s equity,
6 the state of the current real estate market, and the position of any other lien holders. The
7 lender also examines what caused the defaulting action and finds out the borrower’s attitude
8 regarding feasible ways to cure the default.
9 The word workout is used to convey the activities that a lender undertakes to deal with a
10 borrower who is having financial trouble. Often the lender and borrower will come to an
11 agreement to specify the rules they will follow during the workout period. The lender usually
12 agrees to avoid taking legal action. In exchange, the borrower agrees to acknowledge their
13 financial problems and consent to certain conditions that will help alleviate the problem,
14 such as giving the lender periodic and detailed financial statements or agreeing to deposit
15 rents from a rental property into a special account from which they can withdraw only with
16 the lender’s approval.

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1 The alternatives that a lender considers in a workout include:

2
3 • Forbearance or moratorium
4 • Restructuring the mortgage loan
5 • Transferring the mortgage to a new owner
6 • Deed in lieu of foreclosure
7 • Short sale transaction
8
9 Forbearance or Moratorium
10
11 The most common reason for default is failure to make the mortgage payments.
12 Borrowers can have difficulty making payments for a variety of reasons. Among other things,
13 a borrower could lose their job, lose pay due to an extended illness or injury, suffer a
14 personal tragedy, or overextend their credit by running up credit cards.
15 After a lender considers the possible causes for the borrower’s failure to make the
16 payments, the lender may decide to enter into an informal agreement with them.
17 For instance, if the borrower cannot make all of the monthly mortgage payments, the
18 lender may choose to waive the payments for the short term or even forgive all or some of
19 the payments entirely. These waivers are known as forbearance or moratoriums.
20 In these circumstances, the lender may allow the borrower to retain possession of the
21 property in return for meeting some monthly payments, which may or may not include
22 payments towards the principal.
23 If the lender and the borrower can reach such an informal agreement, the lender will
24 adjust the payment amount to meet an amount that the borrower can afford. Then, if their
25 financial condition improves, the lender can opt to have them resume the originally
26 scheduled payment amount.
27 The four common types of forbearance are listed below.
28
29 • Waiver of principal payments. Waiver of principal payments is when the lender
30 allows the delinquent borrower to suspend the payment of the principal and just pay
31 the interest. Sometimes the lender will permit the borrower to skip the entire monthly
32 payment of principal and interest. Any suspended payments are added to the
33 principal, which results in higher payments later in the loan term.
34
35 • Deferred interest. The deferred interest type is when the lender suspends the
36 borrower’s interest payments. The interest is not forgotten but added to the principal,
37 similar to a negative amortization loan. This would be especially helpful to a person
38 whose monthly payments are almost all interest, either because of a high interest
39 loan or because it is a newer loan.
40
41 • Partial payments. The partial payments type of forbearance is when the lender
42 agrees to accept a partial payment of the mortgage. If the situation is determined
43 to be temporary, such as unemployment or disability, the lender may be willing to
44 accept partial payments for a period of time with the assurance that the borrower will
45 add extra money per month at a later time to make up for the delinquency.
46
47 • Prepayments. In the case of forbearance, the prepayment type is when the lender
48 reapplies prepayments that were credited to the principal in the past. In some
49 situations, the borrower sold off part of the property and used the income from that
50 sale to cure the deficiency.

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1 Restructure the Mortgage Loan

2
3 Lenders can restructure a loan in several ways. To restructure the mortgage loan
4 involves lower interest rates, accruals of interest, or extended maturity dates. If the borrower
5 is not personally liable for the original loan, called a nonrecourse loan, the lender could
6 decide to make the borrower personally liable as part of the loan restructuring agreement.
7 This exposes the borrower to significantly more risk if the restructuring fails. The lender may
8 also require a participation in the performance of the property as compensation for the
9 willingness to restructure the loan. For instance, the lender could ask for a percentage of
10 any increase in the income of the property over its current level.
11 Two popular forms of loan restructuring are:
12
13 • Recasting
14 • Extension agreements
15
16 Recasting
17
18 The form of a mortgage can change at any time for any number of reasons over the life
19 of a real estate loan. The process of redesigning a loan is called recasting. A loan is most
20 frequently recast by changing the terms, either temporarily or permanently. Lenders can
21 change terms such as interest rate, amortization period, or payment amount to help ease
22 the strain on the borrower. However, the lender must do this carefully so as not to run the
23 risk of other liens taking priority over the recast loan. For instance, a lender could decide to
24 take no action regarding a delinquency on a construction loan until the building sells,
25 because the recasting of the loan might jeopardize the lien priorities.
26
27 Extension Agreements
28
29 In some cases, the borrower may want to extend the terms of the mortgage. The lender
30 can do this by lengthening the amortization period for the remaining principal. However,
31 before considering and agreeing to such an extension, the lender would investigate some
32 issues.
33
34 • What is the current condition of the property? Has it been well maintained or does it
35 show evidence of neglect?
36
37 • What is the status of any liens? Have liens been filed after the mortgage was
38 recorded? If so, what would be the consequences of an extension?
39
40 • What is the status of any grantees who may have assumed the mortgage? Would
41 the issue of an extension release the grantees from liability?
42
43 Note: If the borrower can refinance the loan with more favorable terms, it is probably not
44 a good idea to apply for an extension agreement. However, the borrower should realize that
45 refinancing could result in changes that are favorable to the lender, such as an increase in
46 the interest rate.
47
48 Transfer the Mortgage to a New Owner
49
50 If the borrower cannot meet their monthly mortgage payments and are in danger of
51 default, they may be able to find another person who can purchase the property and, either
52 assume the mortgage, or take the property subject to the existing mortgage. A new buyer

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1 may be willing to accept this mortgage transfer if they think that the value of the property is
2 more than the mortgage value.
3 In either case, the borrower (seller) retains personal liability for the debt. However, if they
4 are on the brink of default and think that they will lose the property anyway, they may be
5 willing to take the risk of a new purchaser being able to carry out the mortgage obligation.
6 The risk with taking this approach is that the new buyer will default and the original borrower
7 will regain responsibility for the debt yet again.
8 As we discussed in Chapter 8, any buyer who acquires a property subject to the existing
9 loan does not have any personal liability for the debt. Therefore, the new purchaser can lose
10 only the equity that they have invested in the property to purchase it. This investment could
11 be very small, especially if the seller is facing
12 foreclosure. In such circumstances, the new
13 buyer doesn't have much to lose by taking a
14 chance on the property. If it turns out to be a
15 good investment, the new buyer will continue to
16 make the mortgage payments. However, if the
17 new buyer determines that the property will not
18 be worth more than the mortgage debt within a
19 reasonable time, they can discontinue making
20 payments and let the seller have the property
21 back.
22
23 Deed in Lieu of Foreclosure
24
25 When a borrower knows that they can no longer meet their mortgage obligation, they
26 may attempt to sell the equity of the property to the lender. To save time and minimize the
27 expense of a foreclosure, the lender may make or accept an offer to take the title to the
28 property back from the borrower.
29 If both the borrower and the lender agree that the property is more valuable than the
30 mortgage balance, the lender may consent to pay some money back to the borrower for
31 their equity in the property. If the value of the property is less than the mortgage balance,
32 the lender may still be willing to accept the title and release the borrower from the debt. This
33 is called voluntary conveyance or giving deed in lieu of foreclosure. Lenders are usually
34 willing to agree to this solution when the cost of a foreclosure is expected to exceed the
35 loss.
36 In a deed in lieu of foreclosure situation, the title is usually transferred with a warranty or
37 quitclaim deed from the borrower to the lender specifying that the borrower transfer all legal
38 rights and interests in their real property to the lender in exchange for the avoidance of an
39 actual foreclosure. It's important for the borrower to get this release to be sure that they are
40 no longer bound under the note and mortgage. This is especially important in situations
41 where the mortgage balance is more than the value of the property. Otherwise, the borrower
42 may find that they still have an obligation to pay part of the mortgage note, even after they
43 hand the title back to the lender.
44
45 Requirements
46
47 Among other requirements, the underlying loan must be secured by the real property
48 being conveyed, both parties must act voluntarily and in good faith, and, in most cases, the
49 total consideration in the settlement must be at least equal to the market value of the real
50 property transferred. The defaulting borrower must voluntarily initiate a written offer to the
51 lender of deed in lieu of foreclosure before the lender will be able to act upon it. The
52 borrower must obtain the lender's consent for them to relinquish voluntarily the subject
53 property as collateral to the lender. The lender may deny this permission, for instance, if the
54 borrower has enough wealth, income, and assets to afford to pay the monthly mortgage
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1 payments. In addition, the local real estate market conditions will also weigh heavily upon a
2 lender's approval and/or denial of deed in lieu of foreclosure, since lenders generally want
3 cash rather than title to real property.
4 In fact, most lenders want the defaulting borrower to show that they have offered the real
5 property for sale on the market for a certain number of days (usually not less than 90 days)
6 at a reasonable asking price. In addition, the real-world complexities of most real property
7 ownership having more than one lien on the property might also prevent the possibility of a
8 deed in lieu of foreclosure from happening.
9
10 Benefits of a Deed in Lieu of Foreclosure
11
12 The benefits to the defaulting borrower to voluntarily offer the lender a deed in lieu of
13 foreclosure include:
14
15 • Being released from most, or all, of the personal indebtedness
16
17 • Incurring a lesser impact on their credit rating than an actual foreclosure
18
19 • Being released from the responsibility of actually selling the property
20
21 • Avoiding any public notoriety associated with a judicial foreclosure
22
23 • Receiving perhaps more generous settlement terms than those at the end of a formal
24 foreclosure process
25
26 The benefits to the lender include:
27
28 • The cost savings when compared to the dollar outlay of an inevitable judicial
29 foreclosure proceeding
30
31 • A much quicker time required for a settlement
32
33 • Lower risk of loss due to any defaulting borrower’ revenge on the subject property,
34 such as vandalism and theft
35
36 Legal Advice
37
38 Whenever you are dealing with a potentially defaulting borrower, you should always
39 advise them to seek legal and tax advice in order to understand fully any settlement
40 language. For instance, with a deed in lieu of foreclosure, the lender may, or may not,
41 release the defaulting borrower from any deficiency balance that might occur after a final
42 sale of the property. Due to this possibility, you should advise the defaulting borrower to
43 seek legal counsel for a possible bankruptcy filing before a settlement.
44 Depending on which type of bankruptcy the borrower files, part, or all of any deficiency
45 judgment that would be an unsecured lien might be eliminated. However, any advantage to
46 the borrower’s credit rating established by a deed in lieu of foreclosure will most likely be
47 erased by such a bankruptcy filing.

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1 Tax Consequences
2
3 If the lender does forgive the deficiency loan balance, the IRS may consider this
4 forgiveness of debt to be income and therefore taxable to the borrower as a gift from the
5 lender. Under federal law, a creditor is required to file Form 1099C Cancellation of Debt with
6 the IRS whenever they forgive a loan balance greater than $600.
7 Under the Mortgage Forgiveness Debt Relief Act of 2007, tax relief was available only
8 for certain principal residence acquisition and home improvement loans during a forgiveness
9 window of 2007 through 2012. This window was recently extended to 2014. Therefore,
10 some forgiveness of debt still might create a tax liability to a defaulting borrower.
11
12 Short Sale Transactions
13
14 A short sale transaction is a sale transaction in which a
15 seller, confronted with the threat of a foreclosure, enters
16 into a settlement agreement with the lender where the
17 lender consents to a sales price for the property that is
18 below the outstanding loan balance. In other words, the
19 sale proceeds fall short of the amount owed to the lender.
20 You need to understand that short sale transactions can
21 be time-consuming and difficult but very rewarding. In a “market shift” where it moves from a
22 seller to a buyer’s market, one of the first symptoms is the increased number of short sales.
23 Most licensees will avoid this market because it’s time-consuming and labor extensive,
24 which means it also takes knowledge and specific skills. You should see this as an
25 opportunity to work an area with little competition and higher rewards. One of the difficulties
26 from the outset is that a lender typically requires at least one, and sometimes more than
27 one, bona fide offer to purchase from a buyer before the lender will even consider giving
28 consent to a short sale settlement. In addition, the lender will reveal what amount of sale
29 proceeds is acceptable at such a short sale settlement only after they have given consent.
30 Not knowing this information in advance can be very frustrating for all of the parties involved
31 in a short sale. It is common for selling brokers to include language in the sale and purchase
32 contract that states to the effect that, "Buyer understands and agrees that acceptance of this
33 offer to purchase and contract is subject to third-party lender approval within 120 days."
34
35 Requirements
36
37 As with a deed in lieu of foreclosure situation, the lender in a short sale transaction
38 generally requires that the real property has been offered for sale on the market for a certain
39 number of days at a reasonable price in order for the lender to feel confident that the short
40 sale offers being presented are legitimate offers from legitimate buyers in that real estate
41 market. The lender will want to qualify the property value with either a broker price opinion
42 (BPO), an actual appraisal, or both.
43 A lender may hire a real estate professional to perform a BPO to help determine the
44 selling price of the property since the licensee typically has knowledge of the local market.
45 The licensee will be asked to take photos of the property and complete a BPO report form
46 provided by the lender. The report includes a neighborhood analysis of comparable
47 properties along with local and regional market information. Factors that will affect the price
48 of the property in a BPO report are the values of similar surrounding properties, sales trends
49 in the neighborhood, and the amount of repair needed to put the property up for sale. BPOs
50 are less thorough than an appraisal but require more analysis than a basic CMA.
51 Performing a BPO under the supervision of a broker is not a very high paid task;
52 however, this skill creates business opportunities for new listings in the short sale and REO
53 field.

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1 The fact that real property might have more than one lien against it may prevent the
2 possibility of a short sale transaction, since junior lien holders do not have any incentive to
3 agree to a short sale transaction settlement if there is nothing in it for them. It is possible for
4 any one creditor to refuse to reduce and release its respective lien and, therefore, stop a
5 short sale transaction from taking place. In addition, if a lender has mortgage insurance on
6 the loan, then that insurer will likely become a party to the negotiations because the insurer
7 will be requested to pay out a claim on the lender's loss.
8 Please note, though, that just because a property is listed with short sale transaction
9 terms does not mean that the lender will agree to the short sale even after the seller has
10 accepted a sale and purchase offer from a buyer. A lender will insist upon qualifying a seller
11 for a possible short sale transaction and not all sellers will qualify. For example, most
12 lenders require not only that a short sale seller have missed multiple payments (with a
13 negative impact upon that seller's credit rating) but that a short sale seller show financial
14 hardship. If no financial hardship exists, then it probably makes more sense to a lender to
15 foreclose and obtain a deficiency judgment against that defaulting borrower's other property,
16 income, and assets. In such a case, you should advise the defaulting borrower to seek legal
17 counsel for a possible filing of bankruptcy before a closing settlement. Depending on which
18 type of bankruptcy the borrower files, part or all of any deficiency judgment that would be an
19 unsecured lien might be eliminated. However, similar to our discussion regarding a deed in
20 lieu of foreclosure, any advantage to a defaulting borrower's credit rating established by
21 having a short sale transaction will most likely be erased by such a bankruptcy filing.
22
23 Benefits of a Short Sale
24
25 The benefits of a short sale to the seller include:
26
27 • Being released from most, or all, of the personal indebtedness
28
29 • Incurring a lesser impact on their credit rating than an actual foreclosure
30
31 • Avoiding any public notoriety associated with a judicial foreclosure
32
33 • Receiving perhaps more generous settlement terms than those at the end of a formal
34 foreclosure process
35
36 The benefits of a short sale to a lender include:
37
38 • The cost savings when compared to the dollar outlay of an inevitable judicial
39 foreclosure proceeding
40
41 • Avoidance of the responsibility of actually selling the property
42
43 • Lower risk of loss due to any defaulting borrower’s revenge on the subject property,
44 such as vandalism and theft
45
46 Establishing Financial Hardship
47
48 As we mentioned in the previous section, it is necessary for the seller to establish that
49 they have a hardship, which makes it unrealistic or exceedingly impractical for them to keep
50 the property.
51 Generally, lenders focus on and require changed financial circumstances.

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1 Changed financial circumstances include, but are not limited to, the following:
2
3 • Job loss
4 • Unexpected or unusual medical bills
5 • Death of an owner
6 • Natural disasters
7 • Divorce
8 • Disability
9 • Extended military service for a reservist (in some
10 cases)
11
12 The seller needs to write a letter to the lender to explain their changed financial
13 circumstances. It is important for you to help the seller show a connection between the
14 hardship and the need to sell. A seller who has lost a job and has a problem making a
15 mortgage payment is obvious. However, if an illness requires the family to move closer to a
16 specialized medical facility, regardless of financial hardship, the homeowner must move.
17 Declining property values alone do not constitute a hardship.
18 The seller’s hardship letter should describe in detail the reasons why the short sale is
19 necessary based on their situation and be as convincing as possible in their explanation as
20 to why they cannot go on with making their payments. The lender can accept or reject a
21 short sale based on this letter. The seller should state persuasive reasons and they must be
22 honest and frank in their disclosures.
23 You can help the seller by including supporting material including:
24
25 • If the seller lost a job, include the termination letter.
26
27 • If there are medical bills, summarize them.
28
29 • If the situation is caused by illness or disability, have them explain how that has
30 made it impossible for them to keep the property.
31
32 • If the seller has tax issues, have them describe them and offer proof.
33
34 • If the cause was damage due to a natural disaster that was not covered by
35 insurance, have the seller provide evidence of the damage and the denial of the
36 claim.
37
38 Short Sale Documentation
39
40 If the seller’s lender uses a formal short sale application, it is critical for the seller to
41 complete it as soon as possible. This can be a very embarrassing time for the seller, and
42 your empathy is essential. You should reassure the seller they are not alone. You should
43 also prepare them for what is to come and make sure that they are willing to do what is
44 necessary.
45 You and the seller should put together a packet of documentation to provide to the
46 lender. The packet includes:
47
48 • Listing agreement
49
50 • Paycheck stubs for the last two months
51
52 • Federal tax returns for the last two years
53

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1 • Current tri-merged (three-bureau) credit report

2
3 • Current financial statement that shows their income, assets, liabilities, and expenses
4
5 • Your well-prepared market analysis that describes the current market conditions and
6 trends in the immediate area of the property
7
8 • The BPO (You can offer this as an additional opinion and not as a replacement for
9 the one the creditor will order.)
10
11 • A letter from you in which you explain in detail why the short sale is a good business
12 decision for the lender
13
14 • Your contact information
15
16 Short Sale Package
17
18 As we mentioned earlier, it is important that the lender know that you and the seller have
19 done everything possible to sell the house at the highest price. You should include
20 descriptions of your marketing efforts in the short sale package. Once the seller has
21 received and accepted an offer, it’s time to present the package to the lender.
22 The short sale package should include:
23
24 • The packet of short sale documentation (described above)
25
26 • The seller’s hardship letter (described earlier)
27
28 • An explanation of why the short sale is needed and desirable from the lenders point
29 of view
30
31 • A copy of the accepted offer
32
33 • A pre-approval letter from the buyer’s lender (Evidence that the buyer has the cash
34 for the down payment and closing costs would be very helpful if it’s available.)
35
36 • A completed loan application from the buyer
37
38 • A copy of the escrow instructions, along with the name of the person handling the
39 escrow
40
41 • The preliminary title report, if it applies
42
43 • An estimated Closing Disclosure prepared by a certified escrow officer. It is critical
44 for the estimate to be as complete and accurate as possible. The lender may refer to
45 the closing statement in the approval or rejection.
46
47 Short Sale Transaction Guidelines
48
49 Although it should be clear that in a short sale transaction you must abide by all of the
50 same laws and rules that you must comply with in a regular sales transaction, a few key
51 points are worth emphasizing:
52
53 • Manage the expectations of the seller and the buyer from the outset.
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1 • Educate the seller and the buyer about this unpredictable process.
2
3 • Clearly define your role in the short sale proceedings.
4
5 • If you are a transaction broker, obtain the seller's written permission to reveal the
6 motivation of the seller for selling (e.g., short sale, avoid foreclosure, distressed sale,
7 etc.) up front in the Listing Contract (and possibly in a completed MLS feature sheet)
8 to avoid violation of limited confidentiality. [F.S. 475.278(2)(f)]
9
10 • Complete all of the terms of any offers to sale and purchase contracts with the
11 proper addenda attached based upon the needs of that transaction.
12 • Make the running time of all time and dates to be effective upon lender approval of
13 the short sale.
14
15 • When you are listing a property with short sale terms, be careful about setting the
16 listing price unreasonably low. As a listing broker, a transaction broker, or single
17 agent, you must act with skill, care, and diligence in the transaction. This means that
18 you should educate the seller about this concern and then document how you arrived
19 at a reasonable listing price with the seller. [F.S. 475.278(2)(c) and (3)(a)(7)].
20
21 • Advise the seller to talk with an attorney and tax professional about the potential
22 legal and tax consequences in a short sale.
23
24 • Refer a party to a short sale transaction to the Florida Bar Lawyer Referral Service
25 where lawyers charge clients a nominal amount for the initial half-hour office
26 consultation.
27
28
29 For more information about the Florida Bar Lawyer Referral Service,
30 please visit their website at
31 www.floridabar.org.
32
33
34 • Tread very carefully when conducting legal negotiations between the seller's lender
35 and the seller. Although you could obtain written waiver language, or written
36 permission, or a power of attorney document from a seller that permits you to act on
37 the seller's behalf, remember that practicing law without a license is a third-degree
38 felony with serious punishments. In your power team of partners, it is important to
39 have an attorney or title company that specializes in short sales to deal with the legal
40 counseling so that you can focus on the real estate service. This synergic operation
41 will bring customers to both and defer all liability.
42
43 FORECLOSURE PROCESS
44
45 If the defaulting borrower’s lender does not approve a deed in lieu
46 of foreclosure or short sale transaction, then foreclosure is the last
47 option available. In general, once the borrower has missed payments on
48 a certain number of monthly mortgage payments, the lender sends them
49 a notice of default that not only alerts them of the default but also allows
50 them time to catch up on payments, if possible to do so. If the borrower
51 cannot correct the default, the lender will pursue foreclosure through judicial
52 means. In Florida, foreclosure is always a court process. The lender's foreclosure claim will
53 be tried in the court without a jury.

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1 The foreclosure process officially begins when the lender records a lis pendens (notice
2 of lawsuit) and files the lawsuit against the defaulting borrower with the appropriate court
3 where the property is located. The defaulting borrower receives a notice of this action and
4 they must file an answer within a specified period. If the borrower does not respond, then
5 the court makes a judgment against them and sets a date for a foreclosure auction of the
6 property.
7 According to Florida foreclosure law, a notice of sale must be published for at least three
8 consecutive weeks, the last such notice not less than five days prior to the sale.
9 This notice of sale includes all of the following information:
10
11 • The name, address, and telephone number of the contact person for information
12 about the property
13 • The address of the property
14 • A legal description of the property
15 • A description of the property's improvements (if any)
16 • The time and place of the foreclosure auction sale
17 • The times specified in the judgment
18 • The case title, number, and court in which the foreclosure lawsuit was filed
19 • The terms of the prospective sale
20
21 Whenever a legal advertisement, publication, or notice relating to a foreclosure
22 proceeding is required to be placed in a newspaper, it is the responsibility of the lender, or
23 the lender's representative, to place the advertisement, publication, or notice. The petitioner,
24 the petitioner's attorney, or the clerk of the court can place the ad or notice.
25 Florida foreclosure property auctions typically take place at 11 a.m. at the courthouse 30
26 days following the date a court judgment is filed. A winning bidder at the property auction is
27 required to have 5% down payment immediately and the balance due by the end of that day.
28 When the court receives full payment, the person who conducted the sale issues a
29 Certificate of Sale to the new buyer.
30 It is not possible to obtain any injunction against a foreclosure sale from the court,
31 unless, perhaps, there was an error in the court's foreclosure procedure. There is a ten-day
32 period after the foreclosure sale in which the court reviews the sale to ensure that a fair
33 price was paid. Then, the Certificate of Sale is recorded and legal title transfers to the new
34 buyer. If, for some rare reason, the court would not confirm that sale, then another
35 foreclosure auction sale date would be ordered by that court.
36
37 Equitable Right of Redemption
38
39 Every defaulting borrower in Florida has Equitable Right of Redemption. This means that
40 a defaulting borrower can stop a foreclosure proceeding and get their property back if they
41 legally obtain the money with which to pay the lien in full and all expenses. This right to
42 redeem one's property is in force right up until the foreclosure sale of the property at auction.
43 Once the Certificate of Sale has been issued, there is no further right to redeem one's
44 property in Florida.
45
46 Deficiency Judgment
47
48 When a mortgage foreclosure sale does not produce sufficient funds to pay the loan in
49 full, the lender can obtain a deficiency judgment in order to try, through legal means, to
50 satisfy the outstanding balance from the borrower’s other property, income, and assets.
51 Deficiency judgments are allowed in Florida. Consequently, if outstanding debt remains after
52 the foreclosure auction sale, the lender will file a deficiency judgment.

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1 As in the case of deed in lieu of foreclosure and short sale transactions, it might be
2 possible for the borrower to mitigate part, or all, of a deficiency judgment balance by filing
3 bankruptcy. The deficiency judgment balance would be considered an unsecured debt to
4 that creditor.
5 The chapter of bankruptcy the borrower files determines what debts might be wiped
6 clear. The borrower would be wise to consult with an attorney who is experienced in
7 bankruptcy law in order to understand any resolutions and options that might be available.
8
9 AUCTIONS
10
11 There are three major systems for real property auctions throughout the
12 nation:
13
14 • Courthouse auctions
15 • Government auctions
16 • Private auctions
17
18 Courthouse Auctions
19
20 Courthouse auctions, as we just discussed in the foreclosure section, are involved with
21 the enforcement of liens due to borrowers defaulting on items such as property taxes,
22 mortgages, income taxes, or community association fees, and any other judicially required
23 proceedings leading to actual auction of the real property for repayment of that debt.
24
25 Government Auctions
26
27 Government auctions deal with real property owned by various government agencies
28 that sell the property acquired from defaulting borrowers. Such government agencies
29 include HUD and VA. By government request, each agency has set up auction websites to
30 facilitate the sale of this real property.
31 This has presented an excellent opportunity for real estate professionals to specialize in
32 helping potential buyers submit bids in a complex website-bidding process that varies from
33 agency to agency. Knowledgeable and agency-approved real estate professionals can earn
34 very respectable sales commissions for their hard work.
35 Once the government agency accepts an offer to purchase, the process that follows
36 resembles a regular market sales transaction. If the property has been priced properly, the
37 period from initial listing to closing averages only a couple of months.
38
39 Private Auctions
40
41 Private auctions involve all types of real property sellers. These auctions can take place
42 on auction websites or through traditional auction companies. The National Auction
43 Association (NAA) promotes itself as the largest professional association advocating for the
44 professionalism of the auction industry.
45
46 For more information about the National Auction Association (NAA),
47 please visit their website at
48 www.auctioneers.org.
49
50
51 The NAA provides education and designation programs for its members, who must
52 abide by a code of ethics. A real estate professional who wishes to earn a commission for
53 bringing a successful buyer to a private auction must first find out if the private auction entity

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1 will participate and cooperate with selling brokers before introducing a prospective bidder to
2 the auction entity.
3 Private auction contracts are rather straightforward and most of the time they contain
4 three basic terms:
5
6 • "As is, where is" condition. The contract language "as is, where is" means that
7 what the buyer sees is what the buyer gets.
8
9 • No contingencies. The contract language that states no contingencies usually
10 includes no financing contingencies, so the prospective buyers must be certain of
11 their ability to actually follow through with such a purchase with no refunds on bid
12 deposits due to lack of financing.
13
14 • Closing within 30 days. The contract language that stipulates closing within 30
15 days provides for expedient closings that avoid any back-and-forth negotiations
16 typical in regular market sale transactions.
17
18 Auction Industry Terms
19
20 You should be aware of and understand the following special
21 terms and phrases that the auction industry uses:
22
23 • Open outcry. Open outcry is when the highest price is the
24 only consideration with all bidders required to bid with
25 identical other terms.
26
27 • Sealed bid. Sealed bid is when bids are submitted in writing and all bidders are
28 asked to submit their best offer and bid price.
29
30 • Sealed bid convertible. Sealed bid convertible is when bids are initially submitted
31 for private evaluation where it can be determined from the depth of the market
32 (multiple desirable bids) whether to convert the offering into an open outcry auction.
33
34 • Without reserve/absolute. The without reserve/absolute auction is where the
35 highest bidder wins regardless of the price in a final sale.
36
37 • Minimum bid. A minimum bid is set and the property will only be sold at a price
38 equal to or greater than that minimum bid amount.
39
40 • With reserve/no stated price. The with reserve/no stated price is when the seller
41 states no definite asking price and reserves the right to accept or reject the highest
42 bid.
43
44 • Buyer’s premium. A fact that is unique to auctions is that a buyer can be charged a
45 buyer's premium, which is calculated as a percentage of the high bid price and then
46 added to that high bid price to arrive at the total sales price the buyer must pay. This
47 buyer's premium will then offset any marketing and commission costs involved in the
48 auction sale process.

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CHAPTER 10 REVIEW QUESTIONS

1. After considering the causes for a borrower’s failure to make the payments, the lender
may choose to waive or forgive some payments in an informal agreement referred to as
a or .
2. Lowering interest rates or extending maturity dates are examples of a loan.
3. A borrower in danger of default may find a new purchaser to carry out the mortgage
obligation with a mortgage, where the original borrower (seller)
retains personal liability for the debt. The buyer’s loan is a loan,
in that they are not personally liable.
4. A is the process in which the
lender agrees to take the equity of the property to save the time and expense of a
foreclosure. In this case, the title is usually transferred with a or
deed.
5. A takes place when the lender is willing to
accept title to the property even though the value of the property is less than the loan
balance. Lenders may agree to this when the cost of a would most
likely exceed the loss.
6. With a deed in lieu of foreclosure, the lender may or may not release the defaulting
borrower from any after the final sale of the property. You
should advise the defaulting borrower to seek for a possible
filing before a settlement.
7. In a , the lender consents to a sales price for the subject
property that is below the outstanding loan balance.
8. Not all sellers will qualify for a short sale. The seller must (1) have offered the property
for a specified number days, (2) missed with a
negative impact on the seller’s , and (3) convince the lender that
they have a .
9. To obtain consent to a short sale, the seller must write a letter
explaining their , detailing the reasons why
the short sale is necessary.
10. If the lender does not approve a deed in lieu of foreclosure or short sale transaction, a
is the last option available. In this case, the lender sends a to
the borrower to alert them and give them time to , if possible.
11. The foreclosure process officially begins when the lender records a
and files a lawsuit with the court where the property is located. Following the borrower’s
lack of response to a notice of this action, a foreclosure auction date is set. A
must be published for at least three consecutive weeks. Upon sale, the new buyer is
issued a .
12. A auction is involved with the enforcement of liens due to the borrowers’
default on items, such as property taxes, mortgage, income taxes, or association fees.
13. A auction deals with the sale of real property owned by
government agencies.
14. A auction involves all types of real property sellers and can take
place on auction websites or through traditional auction companies.
15. An auction is when the highest price is the only consideration, with
all bidders required to bid with identical other terms.
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CHAPTER 10 PRACTICE EXAM

1. What process allows the borrower to 6. Lenders can restructure a loan in

sell the equity of the property to the several ways. Changing the interest
lender? rate is an example of which popular
a. Deed in lieu of foreclosure form of loan restructuring?
b. Forbearance a. Interest modification
c. Recasting b. Deferred interest
d. Short sale c. Recasting
d. Extension agreement
2. Borrower John lost his job and was
out of work for three months. His 7. When does the foreclosure process
lender allowed John to miss two officially begin?
mortgage payments and agreed to a. When the lender records a lis
add those payments to the back end pendens
of the loan. What is this type of b. When the court makes a judgment
moratorium known as? against the borrower
a. Partial payments c. When the date for the foreclosure
b. Prepayments auction is set
c. Waiver of payments d. When the borrower stops making
d. Payment forgiveness payments

3. What does the IRS typically consider 8. Which of the following is NOT a
any mortgage loan forgiveness? benefit to the mortgage lender when
a. Non-taxable income they agree to a deed in lieu of
b. A business expense foreclosure?
c. A deduction a. Avoids having to sell the property
d. Taxable income b. Less expensive than a judicial
foreclosure
4. A mortgage lender has allowed a c. Faster settlement time
borrower to make a monthly payment d. A lower risk of property loss
that equals half of the original agreed
upon terms of the note for the next 9. Which of the following statements
four months. What type of best defines a short sale?
forbearance arrangement is this? a. Any sale of real estate that falls short
a. Waiver of payments of generating a profit for the borrower
b. Partial payments b. Any sale of real estate that
c. Diminished payments generates proceeds that are less
d. Prepayments than the amount owed to the lender
c. Any sale of real estate that occurs
5. What is the term used for an auction before all terms of the mortgage
that requires bidders to submit in agreement are met
writing their best offer and bid price? d. Any sale of real estate that results
a. Unsealed bid when the borrower stops making
b. Sealed bid loan payments
c. Open outcry
d. Minimum bid

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10. Which of the following statements 13. Which item would NOT generally be
best defines a deficiency judgment? included in the documentation for a
a. A legal action against a borrower short sale package?
whose mortgage payments are late a. Broker price opinion (BPO)
b. A legal action against a buyer who b. Seller’s paycheck stubs
fails to produce the agreed upon loan c. Seller’s federal tax returns
down payment at closing d. Seller’s personal profile, including
c. A notice of court action resulting from photographs, family status, and age
the filing of a lis pendens against a
defaulting borrower 14. What legal process is open to a
d. A legal action against a borrower delinquent mortgage borrower who
whose mortgage foreclosure sale did wants to reclaim their property that is
not produce sufficient funds to pay in the foreclosure process?
the loan in full a. Deed in lieu of foreclosure
b. Equitable right of redemption
11. Which condition is NOT conducive to c. Deficiency judgment
a short sale? d. Bankruptcy
a. Seller misses multiple payments with
negative impact on their credit rating 15. Which condition is NOT generally part
b. Establish seller’s financial hardship of a private auction contract?
c. Property has one or more a. “As-is” condition of the property
outstanding liens b. No contingencies
d. Property offered for sale at a c. No foreign buyers
reasonable price for a specified d. Closing with 30 days
amount of time

12. Property owner Norm has been

informed that a vacant lot he owns
will be auctioned off for back taxes.
What type of property auction will
take place?
a. Courthouse
b. Government
c. Private
d. Closed

Florida Real Estate Sales Associate Post-License Course Reicon Publishing, LLC
CHAPTER

CONDOMINIUMS, COOPERATIVES,
AND TIMESHARES

OVERVIEW Residential homeownership consists of an assortment of single-

and multiple-family dwellings. As a real estate professional, should
understand the particulars of the sale and purchase of these types of
homes. However, along with the familiar types of single-family
residences, you will also deal with the more complex types of
residential dwellings, particularly condominiums (condos),
cooperatives (co-ops), and timeshares.
In addition to the issues that surround the purchase of a more
typical residence, those who buy condos, co-ops, and timeshares
also must deal with such concepts as condominium documents,
homeowners’ associations, common and limited-common elements,
maintenance assessments, and special assessments. In addition,
they will have to deal with complex financing and taxation issues.
Essentially, when a buyer purchases a condo, co-op, or
timeshare unit, they will be living with other owners who made a
similar purchase in the same building. Neighbors are separated by
walls, floors, and ceilings. They are not on a physically separate
piece of land in a physically separate building. Owners will share
common elements, such as elevators, hallways, parking areas, and
recreational facilities. These areas belong not to just one resident,
but to all residents who own property in that building. Common
elements are governed by rules and regulations to which all
residents are bound. This is the nature of this type of living.

OBJECTIVES After completing this chapter, you should be able to do all of the
following:

• Distinguish between the various types of community

associations based on their characteristics
• Describe the laws, documents, and purchasing process
associated with condominium ownership
• Describe the purchasing process, financial statements, and
documents associated with cooperative ownership
• Describe the types of timeshare ownership and the
disclosures required by Florida law
• Discuss the purpose and required disclosures for
Homeowners’ Associations (HOAs)
• Know when a Community Association Management (CAM)
license is required and discuss the duties of a CAM

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 286 Chapter 11

1 OWNERSHIP WITHIN COMMUNITY ASSOCIATIONS

2
3 Ownership within a community association exists in a wide variety of developments from
4 planned unit developments to mobile home parks. You should be knowledgeable about the
5 four most common types, listed on the following page.
6
7 Types of Community Associations
8
9 Each type of community association is governed by a different Florida statute.
10
11 • Condominiums [F.S. 718]
12 • Cooperatives [F.S. 719]
13 • Timeshares [F.S. 721]
14 • Homeowners’ Associations [F.S. 720]
15
16 To read the applicable Florida statutes, please visit this website:
17 www.leg.state.fl.us/statutes
18
19
20 CONDOMINIUMS
21
22 Condominium ownership dates back to the passage of the National Housing Act in 1961
23 that legally recognized this type of real property ownership for the first time in the United
24 States. A condominium is a building in which each owner has a percentage ownership of the
25 entire property. Condominiums can be residential, commercial, or industrial, but in this
26 chapter, we discuss residential condominiums.
27
28 Florida Condominium Law
29
30 Florida condominium law establishes that every condominium buyer has the right to
31 obtain from the seller a copy of the following documents:
32
33 • Declaration of condominium
34 • Articles of incorporation
35 • Bylaws and rules of the association
36 • Condominium association's question and answer sheet
37 • Estimated operating budget
38
39 Under Florida condominium law, the very first buyer from a developer has a 15-calendar-
40 day rescission period, while every subsequent buyer has a three-business-day rescission
41 period. These rescission periods allow a condominium buyer to cancel the sales contract
42 and receive the deposits back. The buyer is not required to give reason for the cancelation;
43 however, they are required to provide timely cancelation within the rescission period. The
44 rescission periods for buyer cancelation begin at the effective date of the sales contract or at
45 the date of the buyer's receipt of the above condominium documents, whichever is later. It is
46 therefore very important for the selling broker to obtain proper documentation of these dates
47 and times.
48 In addition, Florida law now requires that the selling broker furnish every prospective
49 condominium buyer with a copy of the Condominium Governance Form that is published by
50 the Department of Business and Regulation (DBPR) Division of Florida Condominiums,
51 Timeshares, and Mobile Homes. This five-page form is an informational and educational
52 overview of condominium governance and ownership.

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1
2 To read and download this form,
3 please put this URL in your web browser:
4 http://www.myfloridalicense.com/dbpr/lsc/documents/Condominium
5 GovernanceForm.pdf
6
7
8
9 Each condominium unit owner has a vote in the condominium association's affairs. The
10 condominium association membership (comprised of all unit owners) elects a board of
11 directors to assume management responsibilities. The board of directors has the
12 responsibility of developing the condominium association's annual budget, which forms the
13 basis for each condominium unit's maintenance fee. If a condominium unit owner is in
14 default in paying these maintenance fees, then the condominium association may record a
15 lien against that condominium unit and its owners for non-payment with judicial enforcement
16 that could lead to foreclosure court proceedings.
17
18 Condominium Characteristics
19
20 Condominiums have three fundamental
21 characteristics.
22
23 • Individual unit ownership. The condo
24 owner owns their individual apartment just as
25 if it were a private home. Legally, it is
26 considered real property. The owner receives
27 a deed for the unit and the property can be
28 held in severalty, as a joint tenancy, as tenants in common, or as tenants by the
29 entirety.
30
31 • Percentage ownership of common elements. The condo owner owns an
32 undivided percentage of the common elements of the building along with the other
33 unit owners. These common elements include the land and the improvements, such
34 as hallways, elevators, recreational facilities, and other areas common to the
35 building. The individual owner’s share is usually determined by the square footage of
36 their unit. The land and common areas are owned as tenants in common.
37
38 • Governed by board of directors. The condo is governed by a board of directors or
39 board of managers that maintains the common elements and enforces the
40 regulations. The condo owner is also subject to any state laws that govern
41 condominiums. The condo rules are specified in the condominium documents and
42 govern such things as the association dues, the hours the swimming pool is open,
43 and whether or not pets are allowed.
44
45 Condominium Documents
46
47 A new condominium development is created by a developer (known as the sponsor) who
48 obtains local planning commission approval and records the following documents. These
49 documents establish a condominium association that has operational authority over the
50 management of the common areas and enforcement of the bylaws and rules.

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1 • Declaration of condominium. The declaration of condominium explains the nature

2 of the development project. It identifies the name of the condominium, the developer,
3 and the principal officers. It describes the units, the way the condominium is
4 governed, and how the dues will be assessed. It outlines repair and maintenance
5 responsibilities and describes the ownership interest between the condo association
6 and the owner. The declaration is recorded in the public records of the county in
7 which it is located, at which point it becomes effective.
8
9 • Articles of incorporation. The articles of incorporation describe the rights of the unit
10 owners. It covers a number of issues from the rights and duties of the board to
11 whether or not the unit owners can have pets. It generally includes key issues, such
12 as the rental policy, vehicle parking rights, limited-common elements, leasehold
13 obligations, and storage facilities. Even though this may be a long document, it is
14 often easy for the layperson to understand.
15
16 • Bylaws. The bylaws are the basic rules under which the condominium operates.
17 Among other things, the bylaws do the following:
18
19 o Specify the number of members on the board
20 o Detail the nature of the officers and their duties
21 o Identify the manner in which the board members are elected
22 o Define the requirements of the annual membership meeting
23 o Describe the voting rights of each owner
24 o Set forth the number of board of director seats the sponsor can have, and when
25 they must give up control
26 o Describe any sublet provisions
27 o Identify any restrictions on the use of the units and common areas
28 o Describe the owners’ obligations to make repairs
29 o Define the method for making changes to the bylaws
30
31 It is a good practice, and it would separate you from other less proactive agents, to
32 request all of this documentation when you receive the listing and add them to the MLS
33 documents. This will allow buyers to review them prior to making an offer and reduce the
34 risk that the contract may be voided because the buyer did not like something on it. You
35 saved the transaction and provided a true service to your customer.
36
37 Purchasing a Condominium
38
39 A buyer of a condominium unit has the same opportunities for financing available to
40 them as other real property owners. When a buyer purchases a condominium unit, they
41 receive a deed for that ownership. The deed states that the buyer is the owner of a
42 particular stated condominium unit number within the development plus an undivided
43 fraction of ownership in the common areas with all of the other condominium unit owners.
44 In becoming an owner of that particular condominium unit, the buyer becomes the owner
45 of a cubicle of airspace with common area ownership owning the structure itself. The
46 condominium documents establish the demarcation lines of legal and financial
47 responsibilities for repair and maintenance.
48 When choosing a condo, a buyer should look at all the same factors that they would if
49 purchasing a private residence, such as location, size, available services, and price. Other
50 factors the buyer should also consider include the purchase of a unit in a newly constructed
51 or existing building.

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1 The Offering Plan

2
3 An offering plan, also known as a prospectus or black book, is intended to help buyers
4 make an informed decision about their condominium purchase. The offering plan contains
5 specifics about the project, including the number of available units, the size of the units and
6 floor plans, common areas, recreational areas, landscaping issues, parking spaces,
7 appliances, and amenities. Buyers should read the offering plan carefully to determine the
8 sponsor’s obligations. If something is not specified in the offering plan, the sponsor is not
9 obligated to provide it.
10 Things for the buyer to consider before purchasing a newly constructed condominium
11 unit are outlined below.
12
13 • Special risks. Special risks indicate that what is listed in the offering plan is not what
14 is actually delivered by the sponsor. Buyers should not rely on advertising brochures,
15 verbal statements, or architectural renderings. For instance, in most developments,
16 sponsors install minimal but adequate landscaping and when buyers want an
17 upgrade of this item they must pay for it themselves.
18
19 • Real estate tax validation. The exact amount of property taxes on a condo may not
20 be known until the project is actually completed. The financial section of the offering
21 plan lists the projected real estate taxes for the condo. This projection is based on
22 the current tax rate, the assessed value the municipality places on the property, and
23 any tax abatements the developer may be entitled to receive. Many new
24 developments receive tax abatements that result in very small, or even non-existent,
25 taxes for the first several years after the building is completed. In any case, the exact
26 taxes will not be known until the project is completed.
27
28 • Floor plans. The offering plan should have detailed information about the floor plans
29 of all of the recreational facilities and buildings, as well as each of the individual living
30 units.
31
32 • Price increases. There are circumstances when the price of a condominium may
33 increase during the development cycle. For instance, the price of the raw land may
34 have increased since the offering plan was filed or increases in construction costs
35 over the life of a project may cause the price of the unit to increase. If the developer
36 sells the first block of units very quickly, they may decide to raise the prices on the
37 next block. In addition, the maintenance charges for the common areas may become
38 more costly over time.
39
40 • Hidden costs. A buyer may think they are getting one thing and end up with
41 something else instead. For instance, the sponsor may substitute a different brand of
42 appliance from what was listed in the offering plan. Offering plans frequently state
43 that the sponsor can substitute equal or better appliances, but not appliances of
44 lesser quality. In addition, a buyer may want an upgrade of an item, such as better
45 landscaping. When a buyer wants an upgrade of this type, they must pay for it
46 themselves. Again, a careful reading of the offering plan will help the buyer
47 determine if what he or she is receiving is part of the offering or is considered an
48 upgrade that will incur extra charges.
49
50 The Letter of Intent
51
52 A letter of intent is a written statement that expresses the intention of the undersigned to
53 enter into a formal agreement to purchase a condominium. The letter is a written offer to
54 reserve a specific unit, although the agreement can be non-binding with regard to the exact
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1 buyer or the unit’s final price. Usually, the letter of intent is used to create the purchase
2 agreement. If an existing rental building is undergoing a conversion to a condominium, the
3 letter of intent is used by any tenant who wants to purchase a unit when the conversion is
4 complete.
5 A letter of intent contains the following information.
6
7 • Price and deposits. The price and deposits section states the purchase price. It
8 also states an amount of deposit called the reservation deposit, which accompanies
9 the letter of intent and is normally non-refundable. It also indicates an amount of
10 earnest money the prospective buyer will pay when the contract is executed. Both
11 the reservation deposit and the earnest money deposit will be held in escrow and
12 applied to the purchase price at closing.
13
14 • Completion date and closing date. The completion date is specified, subject to
15 delays beyond the control of the seller. The closing date is generally set for 30-days
16 after the completion date.
17
18 • Use of the unit. For residential units, use of the unit section typically states that the
19 unit is to be used for single-family residential purposes only.
20
21 • Nonexclusivity. Nonexclusivity means that the buyer agrees that, in absence of an
22 executed contract, the seller may continue to market the unit. If the seller finds
23 another buyer, the seller must notify the first buyer who will have a specified period
24 to deliver a contract to the seller or the letter of intent will be cancelled.
25
26 A letter of intent may also have a clause that indicates that the letter is neither a specific
27 offer nor a legally binding obligation. If the letter is non-binding, there are no legal damages
28 to either party if one party defaults on the letter. However, in most cases, the letter is
29 intended to create a binding agreement between the buyer and seller. In such cases, both
30 parties are under the obligation to the other with respect to the performance of the terms of
31 the letter and the proposed sale and purchase of the unit until a contract is agreed upon and
32 executed by both parties. When that occurs, the contract supersedes the letter. If the letter
33 is binding, it should stipulate what happens if one of the parties defaults.
34
35 COOPERATIVES
36
37 Cooperative Characteristics
38
39 Cooperative ownership dates back considerably longer when compared to the more
40 recent history of condominium ownership. Cooperative ownership has very unique
41 characteristics. In some cases, a developer creates a private corporation in the cooperative
42 development's name. This newly formed private corporation becomes the owner of the land
43 and the improvements. In other cases, a housing cooperative forms when people join with
44 each other on a democratic basis to own or control the housing and/or related community
45 facilities in which they live. Usually, they do this by forming a not-for-profit cooperative
46 corporation.
47 The main difference between a co-op and a condo is the form of ownership. While a
48 condo owner actually owns the unit, which is treated as real property, a co-op member does
49 not directly own any real estate. The corporation owns or leases all real estate.
50 Each unit in a cooperative is allocated a number of shares of stock. When buying into
51 the co-op, a person is buying those shares in the corporation. As part of the co-op
52 membership, the shareholder has an exclusive right to live in a specific unit (established

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1 through an occupancy agreement or proprietary lease) for as long as they want, as long as
2 they do not break any of the rules or regulations of the cooperative.
3 The developer records documents initially that specify the bylaws of the corporation.
4 Each shareholder has a vote in the cooperative corporation's affairs. The shareholders elect
5 a board of directors with management and enforcement responsibilities similar to those
6 outlined above in the case of condominiums.
7 Each month the shareholders pay an amount that covers their share of the operating
8 expenses of the cooperative corporation. This maintenance fee, or rent, is applied to the
9 costs of operating the building, the building’s real estate taxes, and the debt service on the
10 building’s underlying mortgage.
11 Co-op members are entitled to a tax deduction for their portion of the building’s real
12 estate tax, their portion of the building’s interest payment on its mortgage, and the interest
13 payment on their own unit loan.
14 Unlike most condominium purchases, most cooperative corporation documents prohibit
15 the outside financing of a share of stock in order to prevent an outside lender from becoming
16 an actual shareholder through foreclosure on a borrower's default.
17 If you become involved in a cooperative sale, you should check on these types of unique
18 matters beforehand to educate the participants in any cooperative transaction.
19
20 Purchasing a Cooperative Unit
21
22 Since shareholders own a piece of the cooperative corporation, it is important for them to
23 know the financial health of the cooperative before they make the decision to purchase.
24 Potential buyers should review the annual financial statement, with the help of their attorney
25 or an accountant, before signing any contract. This review is known as due diligence. It is a
26 good idea to review two years’ worth of statements. Often, a lender will ask a buyer to
27 submit the financial statements of the cooperative or condominium before it approves a
28 loan.
29 It is a good idea to ask the MLO for a copy of the condominium or cooperative
30 questionnaire and give it to the buyer. The questionnaire that needs to be answered by the
31 association, will give you and the buyer an indication of what to look for when we talk about
32 risks. Going by the lender standard will help the buyer reduce the risk of a bad purchase and
33 increase the possibility of financing the acquisition.
34
35 Understanding the Financial Statements
36
37 When looking over the financial statements, the potential buyer should focus on four
38 critical parts:
39
40 • Accountant’s opinion letter. The accountant’s opinion letter should be located at
41 the front of the financial statement and addressed to the board of the condominium
42 association or Cooperative Corporation. The letter should have the phrase “presents
43 fairly” and should not have restrictive language such as “subject to” or “except for.” If
44 the letter has the words “compilation” or “review,” that means the financial statement
45 has not been audited to verify that the information it contains is correct. A compilation
46 or review opinion means that there is a problem, and the prospective buyer should
47 do further investigation to determine if issues exist. Reading the board’s minutes
48 could be very helpful in this investigation.
49
50 • Statement of financial position. The statement of financial position is also known
51 as the balance sheet. The balance sheet is a financial snapshot of the condo or co-
52 op that shows its assets, its liabilities, and its net worth, stockholder capital, or equity
53 (equal to the assets minus the liabilities). This snapshot is taken at a specific point in
54 time, usually December 31st, but the statement may not be ready for several months
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1 afterword. The important components of the statement include information about the
2 financial resources (cash, cash equivalents, and reserve funds), accounts receivable,
3 accounts payable, and mortgage balances.
4
5 • Income statement. Also called the statement of
6 operations, the income statement shows the stream of
7 activity during a certain period, usually one year. It tells
8 what has been earned, what has been spent, and what is
9 left over. Most cooperatives show a negative net income.
10 This is not a problem. If the income collected is about the
11 same as what has been disbursed, then the depreciation
12 creates a negative income figure. If the depreciation is
13 added back to the net income, the result is the amount of
14 positive cash flow that was received by the building. This is
15 the amount of money added to the building reserve fund.
16 It’s important to remember that a cooperative’s aim is not to make a profit, which
17 would be subject to tax. The co-op’s goal is to cover costs and build adequate
18 reserves.
19
20 • Notes to the financial statement. The notes to the financial statement at the end of
21 the statement clarify the information that was presented. Some of the notes deserve
22 special attention.
23
24 o Note about the mortgages giving maturity date, amount of the monthly payment,
25 and any special terms
26 o Note relating to the terms of the lease if the building is on a land lease
27 o Note relating to the reserve funds. The funds should be in appropriate financial
28 instruments and there should be no indication of lending arrangements that show
29 the co-op or condo is borrowing from the reserve funds.
30 o Any note that is related to contingent liabilities or legal matters which might
31 describe matters such as a pending lawsuit
32
33 Board Meeting Minutes
34
35 When considering a co-op purchase, it is helpful to the prospective buyer to review the
36 board meeting minutes. The minutes can provide information regarding some critical areas.
37
38 • Maintenance and assessment history. The income statement shows how much of
39 the budget is being spent for maintenance and repairs. Maintenance and repair is the
40 cost of keeping the building clean and operating in a manner that is consistent with
41 the homeowners’ expectations. If the expenditures are high, it might mean that the
42 building is vigorously maintained, or it could mean that the building’s systems are
43 becoming obsolete and cost more to be kept operational. This might imply that a
44 future assessment or maintenance increase will be necessary to replace a system
45 that has become too expensive to maintain. Conversely, if the maintenance costs are
46 low, it could mean that the building has new systems that are under warranty and not
47 in need of a great deal of maintenance, or it could be that the building is not being
48 managed correctly or properly maintained.
49 During its scheduled meetings, the board may discuss maintenance issues and
50 make decisions about whether they will need special assessments during the year to
51 cover certain expenses. Reading the minutes will give the prospective buyer an idea
52 of what maintenance issues are of concern to the cooperative board.

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1 • Underlying mortgage. Most co-op buildings have one or more mortgages on the
2 entire building. This is what is known as the underlying mortgage. The financing of
3 the co-op's underlying mortgage is one of the most significant factors in the fiscal
4 integrity of the building. The size of the mortgage and the corresponding monthly
5 payments have a significant impact on the value of each individual unit. Before
6 making a purchase, prospective buyers should determine what type of mortgage
7 exists, how many mortgages there are, and when the mortgages will mature. The
8 financial statement will have this information. If the mortgage is maturing soon, it may
9 have to be refinanced which could be a large expense to the co-op corporation.
10 However, this is not always a negative thing. It is true that once the loan is
11 refinanced, the principal portion of the payment is low and the interest payment is
12 high, but that means the maintenance goes down while the tax deduction goes up.
13 Again, reading the board minutes can give the prospective buyer information
14 about the status of the mortgages that can’t be found in the financial statements.
15
16 • Reserve fund. Information about the reserve fund can usually be found in the
17 financial statement, but it may also be addressed in the board minutes. The reserve
18 fund is the money that is set aside for major capital improvements, unexpected
19 repairs, or replacement of building systems. If the fund is large enough, there may be
20 no need for increased maintenance fees, assessments, or new loans. If there is a
21 shortfall, shareholders might have to absorb maintenance increases to cover the cost
22 of the installation of new building systems, or to pay the interest and principal on a
23 loan. Some co-op boards pass the expense to shareholders through assessments
24 rather than maintenance fee increases.
25 Reserve funds may not be used for shortage of the monthly expenses. It is
26 important not only to see that the association is collecting reserves, but that those
27 reserve funds are not touched for other purposes. That could be a sign of financial
28 hardship in keeping up with the expenses with the HOA dues collected.
29
30 Cooperative Documents
31
32 Since the purchase of a co-op is different from the purchase of the real property of a
33 condominium, the documents needed for the transfer of the property are also different.
34 As we discussed earlier, co-op residents do not actually buy their individual unit; they
35 purchase the shares in the cooperative corporation that are allocated to a particular unit.
36 The contract to purchase the shares is called a subscription agreement. The subscription
37 agreements are prepared by the cooperative sponsor and are included in the offering plan.
38 In addition to the subscription agreement, the documents typically needed for a cooperative
39 transfer include:
40
41 • Proprietary lease
42 • Articles of incorporation
43 • Bylaws
44 • House rules
45
46 Purchase Documents
47
48 When the buyer closes on a purchased unit, they receive stock certificates in their name.
49 The certificates could be issued one-per-share or there could be just one certificate that
50 states the total shares the buyer has.
51 As we mentioned earlier, co-op buyers do not receive a deed to their property. Instead,
52 ownership of the shares entitles the buyer to a long-term proprietary lease for the unit. The

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1 lease defines the buyer’s rights and obligations with respect to the possession, use, and
2 occupancy of the unit. The lease is delivered to the buyer at closing.
3
4 TIMESHARES
5
6 Timeshare Characteristics
7
8 Timeshare ownership is set up initially by a
9 developer of a timeshare development, which will
10 have condominium governance as outlined above.
11 However, with timeshare ownership, no one owner
12 owns an entire unit alone. Instead, each timeshare
13 owner owns a fractional share of ownership based
14 upon a certain period of use (for example, one
15 week).
16
17 Types of Ownership
18
19 There are two types of timeshare ownership: point system and right-to-use.
20
21 • Point system. With the evolution of time and industry, even the timeshare industry
22 has evolved. You might purchase into a Timeshare Trust and receive a fee simple of
23 the purchase of the trust and obtain “points” in exchange for your investment.
24 Timeshare points are like currency. Based on the frequency of your ownership
25 (biannual, annual, biennial, etc.), you receive a number of points to use for your
26 vacation. These can be purchased directly from the resort, or through timeshare
27 points for sale on the secondary market. The more points you have, the more
28 flexibility you have for traveling.
29
30 • Right-to-use. With the right-to-use type of ownership, the buyer does not purchase
31 ownership rights but just the right-to-use and possess a unit for a specified period
32 during any one year for a stated number of years. When that stated number of years
33 is over, the buyer has used up all of their use and possession rights and has nothing
34 left. Hence, many refer to this as a vacation lease.
35
36 Timeshare Disclosure Requirements
37
38 The sale of timeshares is one of the real estate specialties and because of this it
39 requires a license to earn a commission. There are two kinds of buyers in the market, and
40 they purchase from the sellers that mirror their characteristics
41
42 • The analytical buyer. The analytical buyer’s decision to buy is driven by numbers,
43 logic, systems, and everything they can tangibly see and prove. Investors are
44 traditionally highly analytical. If the numbers are right, they buy.
45
46 • The emotional buyer. The emotional buyer makes decisions based on feeling. Their
47 decision to purchase is driven by the heart; they buy because they like it and want it,
48 not because they need it. An emotional seller will do very well in this industry.
49
50 If you are involved with any timeshare transactions, you should become familiar with all
51 of the strict disclosure requirements as stated in the Florida law for Vacation and Timeshare
52 Plans as outlined in F.S. 721.

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1 Some of the required disclosures when selling new timeshare units are:
2
3 • Buyer has a 10-day rescission period to cancel a sales contract with no penalty.
4
5 • Timeshares should be purchased for the purpose of leisure-time activity instead of
6 for investment appreciation.
7
8 Some of the required disclosures when selling resale timeshare units are:
9
10 • No guarantee that timeshare can be sold for a particular price or within a particular
11 period.
12
13 • Amounts of assessment fees and the fact that assessment fees may increase.
14
15 • Amount for property taxes, if not included in assessments for common expenses,
16 and consequences that result from non-payment of property taxes.
17
18 HOMEOWNERS’ ASSOCIATIONS (HOA)
19
20 Ownership of real property within a homeowners’
21 association (HOA) occurs because a developer of, or owners
22 in, a subdivision record private subdivision restrictions that
23 affect all owners and all subsequent buyers in that particular
24 subdivision. Because these subdivision restrictions are private, their enforcement is the legal
25 and financial responsibility of those who benefit from them. Consequently, subdivision
26 restriction documents create a homeowners’ association, which assumes these managerial
27 and enforcement obligations with mandatory membership of all owners and all subsequent
28 buyers.
29 If you are involved in transactions with private restrictions, you should obtain copies of
30 these documents from the beginning of your transaction and have them available for
31 potential buyers to review.
32
33 Required HOA Disclosures
34
35 Homeowners’ associations are governed by F.S. 720. If a sales contract does not
36 conform to the requirements of this subsection in Florida law, the buyer may void it within
37 three days, or prior to closing, whichever comes first.
38 Florida law requires that a homeowners’ association disclosure be provided to buyers
39 when membership in such an association is required. Initial developers and subsequent
40 owners must disclose to a buyer who signs a sales contract that:
41
42 • The owner is required to be a member of the HOA.
43
44 • Recorded private restrictions govern the use and occupancy of the property.
45
46 • The owner is obligated to pay assessments to the HOA with failure to pay leading to
47 possible lien recording and enforcement with foreclosure.
48
49 • There may be land use and/or recreation fees. If so, the amounts of such obligations
50 must be disclosed in the contract.

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1 COMMUNITY ASSOCIATION MANAGEMENT LICENSE

2
3 Certain property managers who are employed and
4 compensated by community associations are required by
5 Florida law to obtain and maintain a Community Association
6 Management (CAM) license. [F.S. 468]
7 A CAM license is required when the community
8 association employs a property manager who receives
9 compensation for those services, and the community
10 association served contains more than ten units or has an
11 annual budget in excess of $100,000.
12
13 Property management activities compensated for include:
14
15 • Controlling or disbursing association funds
16
17 • Determining how or when to prepare budgets or other financial documents for a
18 community association
19
20 • Determining how or when to provide notice of meetings or to conduct community
21 association meetings
22
23 • Maintaining and/or having authorization to spend community association petty cash
24
25 • Coordinating maintenance for the residential development
26
27 Community association compensated property management can be applicable to mobile
28 home parks, planned unit developments, homeowners’ associations, cooperatives,
29 timeshares, condominiums, or other residential units which are part of a residential
30 development scheme, and which are authorized to impose a fee that may become a lien on
31 the parcel in the case of non-payment.
32
33 Who Does Not Need a CAM License?
34
35 There is no Florida license for a property manager. Therefore, a CAM license is not
36 applicable to the management of apartment buildings, commercial properties, or investor-
37 owned single-family dwellings.
38 In addition, community associations are not required to hire outside property managers.
39 The community association board members and officers can perform the property
40 management services without obtaining a CAM license provided they receive no
41 remuneration or compensation.
42 A person does not require a CAM license if they perform clerical or maintenance
43 functions under the direct supervision and control of a licensed manager, and do not assist
44 in providing any management services.
45
46 CAM Licensing Requirements
47
48 In order to obtain a CAM license, an applicant must meet all of the following criteria:
49
50 • Be at least 18 years of age and be of good moral character as defined by Florida
51 Administrative Code

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1 • File a complete and accurate application with the State of Florida

2
3 • Submit electronic fingerprints and pass a criminal background check
4
5 • Pay appropriate fees
6
7 • Satisfactorily complete a minimum of 18 hours of pre-licensure education (classroom
8 or distance learning) within 12 months prior to the date of taking the CAM exam
9
10 • Pass a State of Florida CAM license exam of 100 multiple-choice equal weight
11 (1-point each) questions with a passing score of 75 or better through the computer-
12 testing vendor Pearson VUE
13
14 All CAM licenses expire on September 30th of every even-numbered year. All CAM
15 licensees must satisfactorily complete a minimum of 20 hours of approved continuing
16 education instruction during each license renewal period.

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CHAPTER 11 REVIEW QUESTIONS

1. Community associations are governed by the following Florida Statutes:

(1) Condominiums: F.S. ; (2) Cooperative: F.S. ; (3) Timeshares: F.S. ;
(4) HOAs: F.S. .
2. A is a building in which each owner becomes the owner of a particular
unit within the development plus an undivided percentage ownership of the
of the building.
3. In a condominium development project, the describe the
rights of the unit owners and the specify the basic rules under which the
condominium operates.
4. The , also known as a prospectus or black book, is intended
to help condominium buyers make an informed decision about their condominium
purchase.
5. A is a written statement that expresses the intention to enter into
a formal agreement to purchase a condominium. It is usually used to create the .
6. The main difference between a co-op and a condo is the .
A unit owner actually owns the property. Whereas a unit
owner owns in the corporation; the corporation owns all
real estate.
7. Each month the shareholders in a cooperative pay an amount that covers their share of
the of the cooperative corporation. This fee is applied to
the building operating costs, real estate taxes, and the debt service on the building’s
mortgage.
8. Cooperative members are entitled to a tax deduction for their portion of the building’s:
(1) , (2) on the mortgage, and (3) on
their own unit loan, although most cooperatives prohibit outside financing of shares of
stock to prevent an outside lender from becoming a shareholder through .
9. A cooperative’s (also known as the
balance sheet) is a financial snapshot of the co-op’s assets, liabilities, net worth,
stockholder capital, or equity.
10. A potential co-op buyer should review the , which
contains information on the maintenance and assessment history, underlying mortgage,
and reserve fund.
11. The contract to purchase shares of a co-op corporation is called a .
12. There are two types of timeshare ownership: and .
13. The following disclosures are required when selling new timeshare units: (1) the buyer
has a rescission period to cancel a sales contract with no penalty, and (2)
timeshares should be purchased for instead of for
appreciation.
14. A CAM license is required when a community association employs a property manager
who receives , and the community association served contains more
than units or has an annual budget in excess of .
15. Compensated property management activities include: (1) disbursing association ,
(2) determining how or when to prepare or other documents, (3)
determining how or when to provide , and (4) coordinating
.
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CHAPTER 11 PRACTICE EXAM

1. Which type of purchase most closely 5. Which statement is INCORRECT

resembles the purchase of a single- regarding subdivision restriction
family residential purchase? documents that are recorded for a
a. Timeshare unit with interval private subdivision?
ownership a. Mandatory membership is required
b. Timeshare unit with right to use for all owners and subsequent
ownership buyers.
c. Condominium unit b. Managerial responsibility must be
d. Cooperative unit delegated to an impartial CAM who
is not an owner.
2. What can happen if a condominium c. Enforcement is the legal and
owner is in default from failure to pay financial responsibility of the owners
their share of the condo maintenance who benefit from the restrictions.
fees? d. They create a homeowners’
a. A lien could be recorded with judicial association.
enforcement that could lead to
foreclosure. 6. Which individual must obtain and
b. The condo association could request maintain a Community Association
that the lender initiate foreclosure Manager (CAM) license?
proceedings. a. A volunteer owner who performs
c. The condo association could prevent property management services for a
owner access to the unit until the 6-unit residential community
fees are paid. b. A paid property manager for a 30-
d. The amount of unpaid fees would be unit apartment building
deducted from the owner’s mortgage c. A paid employee of a licensed CAM
payments. who provides clerical support
d. A paid board member who performs
3. The Declaration of Condominium is property management services for a
recorded in the public records and community with an annual budget of
explains the nature of the $150,000
condominium development project.
What is NOT included in these 7. Under Florida condominium law, how
documents? many days does the very first buyer
a. Name of the condominium, from a developer have to rescind a
developer, and principal officers purchase offer?
b. Description of the way the a. 15 business days
condominium is governed b. 3 business days
c. How dues will be assessed c. 15 calendar days
d. Name and contact information for all d. 3 calendar days
unit owners
8. What is obtained by the buyer in a co-
4. In what document would a op real estate transaction?
condominium buyer find specifics a. A number of cooperative points
about the number of available units, b. Ownership of the co-op unit for a
the size of the units, floor plans, and specified time interval
common areas? c. Ownership of the co-op unit
a. Plat diagram d. A number of shares of stock
b. The offering plan
c. Condo bulletin
d. Shared newsletter

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9. Which document shows how much of 13. According to Florida condominium

a co-op's budget is being spent for law, every condominium buyer has
maintenance and repairs? the right to obtain certain documents
a. Income statement from the seller. Which document is
b. Accountant’s opinion letter NOT included?
c. Statement of financial position a. Stock Portfolio Prospectus
d. Notes to the financial statement b. Declaration of Condominium
c. Articles of Incorporation
10. What due diligence is especially d. Bylaws and Rules of the Association
important when making the decision
to purchase a co-op unit? 14. Florida law requires that specific HOA
a. Obtain a copy of the deed. disclosures be provided to buyers
b. Understand the financial health of when membership is required. Which
the cooperative. statement is NOT one of these
c. Obtain the lowest price. disclosures?
d. Meet the neighbors in the nearby a. HOA membership is required for all
units. owners.
b. Recorded private restrictions govern
11. Buyer Frank just closed on a property the use and occupancy of the
with the right to use and possess the property.
unit for a specified period during any c. All subsequent sale of the property
one year for ten years. What type of must be approved by the HOA board
property did Frank buy? of directors.
a. Cooperative unit d. The owner must pay HOA
b. Condominium unit assessments, which are enforced
c. Timeshare unit with a vacation lease with possible lien recording.
type of ownership
d. Timeshare unit with interval 15. Which characteristic does NOT apply
ownership to condominium ownership?
a. Individual unit ownership
12. A letter of intent is a written b. Ownership by a corporation
statement of the intention to governed by bylaws
purchase a condominium. Which c. Percentage ownership of common
information is NOT included? elements
a. Exclusivity - the seller may not d. Governed by a board of directors
continue to market the unit according to specified rules
b. Price and deposits - the stated
purchase price and reservation
deposit
c. Closing date - subject to delays
beyond the seller’s control
d. Use of the unit – stating use for
single-family residential purposes
only

Florida Real Estate Sales Associate Post-License Course Reicon Publishing, LLC
CHAPTER

REAL ESTATE
INVESTING AND TAXATION
OVERVIEW While saving means accumulating money, investing means using
money to earn more money. A basic goal of investing is to generate
more income and create wealth. Unlike stock market investments,
when investing in real estate the control remains in the hands of the
investor. The investor makes their own decisions that affect the
future of the investment. In addition, the investor can structure
purchase and sales according to their particular needs.
An investor can realize profits from real estate in several ways,
such as positive cash flow, tax benefits, and appreciation that are
realized at the time of sale or are realized by borrowing on the
equity. Property can also serve as a hedge against inflation. In
addition, property investments are considered long-term and low
risk, as compared to some other types of investments.
However, as with any investment, an investor can also lose
money. With property investments, this usually happens as negative
cash flow or loss realized when the property is sold.
Real estate investing is a complex process. In this chapter, we
will discuss some of the characteristics of investing, the different
types of investment properties, the steps to investing in real estate,
and the types of analysis an investor should perform when
considering an investment.

OBJECTIVES After completing this chapter, you should be able to do all of the
following:

• Describe the characteristics of real property investment

• Identify and discuss the types of real estate investment
properties
• Discuss the steps in real estate investment
• Explain financial analysis, including deriving net operating
income, before and after-tax cash flow
• Explain real estate taxation, including capital gains and
losses, and depreciation
• Discuss tax shelters and property exchanges

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1 REAL ESTATE INVESTMENT

2
3 As a real estate professional, you would be wise to be open to all real estate service
4 opportunities. One area that offers abundant opportunities is working with investors who
5 want to buy, sell, rent, lease, and/or exchange all different kinds of investment properties.
6 Investments of all types are continuously competing with one another for the finite
7 number of investment dollars available in the marketplace at any given moment. The
8 benchmark for evaluating the pros and cons of investments is normally U.S. government
9 securities, which have extremely low, if any, risk of loss to an investor but have produced
10 historically low yields. Other investments with increased risk often have proportionately
11 increased yields.
12
13 Characteristics of Real Property Investment
14
15 The goal of investing is to realize profits. Investors do this by weighing several factors.
16 These factors include risk, liquidity, and leverage.
17
18 • Risk. Risk is the chance of experiencing a loss. The loss can be either monetary or
19 non-monetary. A loss can be real even if it is only considered a loss by one
20 individual. Often, the greater the risk of loss, the greater the potential rate of return
21 on the investment. Investors want both a return of their investment (the recovery of
22 the invested monies) and a return on the funds in the form of a profit.
23 When determining where to invest their funds, investors calculate a rate of return
24 on the investment to see which investment will perform the best. Property
25 investments must offer the promise of higher returns in order for an investor to
26 choose property over other, safer investments. For instance, if an investor knows
27 that they can get a 5% return on a treasury bond, they will expect more from a
28 property investment because of the risks involved. Sometimes after an investor
29 examines all the factors involved, they determine that the risk in not worth the return
30 that they would realize.
31 A common error of investors is to calculate the return of investment by dividing
32 the income of the property by the price of the property. As you learned in Chapter 16
33 of the 63-hour pre-license course, that calculation would give you the capitalization
34 rate, which is the performance of the property, not the ROI. It is important to
35 understand that the Investor must calculate the return over the money invested,
36 which is the purchase price only if they used cash. Most investments are
37 leveraged/financed, and the calculation is the cash-on-cash return or the
38 capitalization rate, which is the net operating income – debt service = before taxes
39 cash flow divided by the down payment (the actual cash invested). This way you
40 have the performance of investment. The ability to correctly calculate this financial
41 investment and statement will make you a great asset for the investor and result in
42 repeat business from the same investor.
43
44 • Liquidity. Liquidity refers to an asset's ability to be easily converted through an act
45 of buying or selling without causing a significant movement in the price and with
46 minimum loss of value. Cash is the most liquid asset. A liquid asset can be sold
47 rapidly with minimal loss of value. The essential characteristic of a liquid market is
48 that there are ready and willing buyers and sellers at all times.
49 An illiquid asset is one which is not readily saleable due to uncertainty about its
50 value or a lull in the market in which it is regularly traded. Property is considered an
51 illiquid asset, which cannot be transferred as easily as other assets, such as stocks
52 or bonds.

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1 • Leverage. Leverage is the use of borrowed funds to increase the potential return of
2 an investment. Financial leverage is created by mixing borrowed funds with equity
3 (the cash contributed by the investor). The higher the ratio of borrowed funds to
4 equity, the greater the degree of leverage. Leverage magnifies both gains and
5 losses. When the rate of return exceeds the cost of borrowing and increases the
6 investor’s yield, the leverage is said to be favorable or positive. If the cost of
7 borrowing is greater than the return, then the leverage is unfavorable or negative.
8 Financial leverage can be measured as a debt-
9 to-equity ratio, that is, total liabilities divided by
10 shareholders' equity. In the real estate market, the
11 ratio between borrowed funds and the market
12 value of the property being financed is more
13 commonly used and is the loan-to-value ratio
14 (LTV).
15
16 Advantages and Disadvantages of Real Estate
17 Investment
18
19 An investment in real estate is normally referred to as the purchase of real property for a
20 certain value that will yield a desired capitalization rate (profit return on investment) based
21 upon the premise of receiving anticipated income and/or anticipated appreciation in value
22 over a predetermined period. There are both advantages and disadvantages associated
23 with investing in real property.
24 Advantages of investments in the real estate industry include:
25
26 • Relatively high yields
27 • Leveraging opportunities
28 • IRS federal income tax deductions, allowances, and credits
29 • High degree of personal control
30
31 Disadvantages of investments in the real estate industry include:
32
33 • Relatively illiquid
34 • Large capital requirements
35 • Necessity of constant management
36 • High risk of loss
37
38 TYPES OF REAL ESTATE INVESTMENT
39
40 Investment properties fall into a number of categories:
41
42 • Unimproved land
43 • Office buildings
44 • Residential properties
45 • Mixed-use buildings
46 • Commercial/retail properties
47 • Industrial properties

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1 Unimproved Land
2
3 Investment in unimproved or undeveloped property is
4 probably the riskiest of all property investments, as it can
5 be the most illiquid of all property types. Unimproved
6 property is a long-term investment with a negative cash
7 flow. Even if the investor pays for the property in full, they
8 must still pay the yearly taxes, which could increase
9 significantly over time. In addition, since there are no
10 improvements on the property, there are no depreciation benefits with unimproved ground.
11 Another disadvantage in purchasing unimproved property is that the zoning of the land
12 can change. A change in zoning could mean a change in the property’s value. A change
13 from residential to commercial could result in a substantial increase in value. Conversely, a
14 change from commercial to residential could have serious adverse effects on the property’s
15 value. In addition, governments can impose building restrictions that could limit or even
16 prohibit development until utilities are brought to the site. These utilities could be charged to
17 the property owner.
18 On the other hand, the advantage to investing in unimproved property is that it offers
19 excellent appreciation potential with the added benefit of no management issues. If there
20 are no tenants and no buildings, not much can go wrong. The greatest increase in the value
21 of real estate comes from taking vacant land with the lowest basic value and turning it into a
22 high-value property, ranging from commercial sites to parks. When circumstances are
23 favorable and the investor knows what the future plans are for the area, land investment is
24 not a risk for investors that have the time and the ability to hold the property.
25 To specialize in providing service to this kind of investor, requires a deep knowledge of
26 the future change of the land in your county. The local planning agency is the perfect office
27 to start investigating this matter. Since many agents will not go the extra mile for this
28 specialty, this makes you a great asset for this investor.
29
30 Office Buildings
31
32 An office building can be a major multi-tenant building
33 in the central business district of a large city or it can be a
34 single tenant building, sometimes built for a specific
35 tenant’s needs, such as a medical office building near a
36 hospital. It can range in size from a few hundred square
37 feet of small offices to a complex with several million
38 square feet.
39 Office buildings are found in any number of areas:
40 business districts, suburban areas, small residential neighborhoods, and large specially built
41 office parks. Modern high-rise buildings have tended to replace older, smaller buildings in
42 central business districts, while one-to-two-story office centers typically spring up in office
43 parks in the suburban areas.
44 Office buildings vary by size.
45
46 • Low-rise. Low-rise buildings have few stories, usually one to three, and may have
47 no elevator.
48
49 • Mid-rise. Mid-rise buildings are moderately tall, averaging four to fifteen stories, and
50 typically have one elevator.

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1 • High-rise. High-rise buildings are normally over 15 stories tall and have multiple
2 elevators. High-rise buildings are not as tall as skyscrapers. High-rise buildings tend
3 to have multi-tenant floors near the base of the building and single-tenant floors near
4 the top. This helps use the building space in the
5 most efficient manner possible.
6
7 • Garden office. Garden office buildings are one to
8 five story buildings with extensive landscaping.
9
10
11
12
13
14 • Research and development. Research and development (R&D) buildings are
15 typically one or two stories with up to 50% office or dry laboratory space and the rest
16 workshops, storage, and possibly light manufacturing.
17
18 • Flex space. Flex space buildings are usually one
19 or two stories that can accommodate warehouse
20 and light industrial activities in addition to offices.
21
22
23
24
25
26
27 Residential Property
28
29 Reasons for Investment
30
31 There are two main reasons that investors purchase residential property:
32
33 • To keep. Some investors purchase property to keep, which means that they will buy
34 the property and hold it for the long term in an effort to get income, see the property
35 appreciate in value, and sometimes gain tax benefits.
36
37 • To flip. The other reason investors purchase property is to flip it. This is when an
38 investor buys a property with the intention to sell it as soon as possible. Investors
39 that intend to flip properties feel that they can make a profit either with or without
40 renovation, repairs, or improvements.
41
42 Types of Residential Investments
43
44 While the purchase price for a home is always important, it is not as critical for homes
45 that will be held as it is for homes that will be flipped. There are a number of investment
46 alternatives available to an investor, depending on the amount of time they have to spend
47 on the investment process, as well as the investor’s individual talents and goals.
48 The residential properties that can make good investments are:
49
50 • Single-family homes. Single-family homes are described as detached units found in
51 subdivisions, neighborhoods, or in cluster home developments, where the owners
52 share outdoor and common areas.

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1 Most of the time there are a large number of single-family homes available on the
2 market. Managing a single-family home is easier than almost any other type of
3 residential property. The single-family home normally has an active resale market,
4 which can offer a high amount of liquidity for investors. In fact, single-family homes
5 are the most liquid of all real estate investments and are the most easily rentable.
6
7 • Vacation homes. Vacation homes can make good investments. Many investors
8 purchase a vacation home for enjoyment, as well as investment. The fact that
9 interest and property taxes are tax deductible helps to offset the cost of the second
10 home.
11 If the investor lives in the vacation home for 14
12 days a year or less, they can take depreciation on
13 it. However, if the investor lives in the home for
14 longer than 14 days, no depreciation is allowed.
15 Therefore, many investors use a vacation home a
16 few weekends a year and then rent it out at all
17 other times in order to be able to take depreciation.
18 Vacation homes that tend to be the most
19 desirable include homes in warmer locations, like
20 Florida, California, and Arizona; homes at ski resorts; and homes near bodies of
21 water. If there is popular recreation nearby, almost any residence provides a good
22 second-home investment.
23 You must be aware that recent changes in law registrations have made this part
24 of the industry stricter and with additional requirements. We suggest that you visit the
25 DBPR website at https://www.myfloridalicense.com to get the information needed to
26 serve your client.
27
28 • Condominiums and cooperatives. The advantage of investing in a condominium is
29 that it is relatively easy to rent, while providing less direct owner involvement. In a
30 condominium complex, the grounds and exterior maintenance are handled by an
31 association, so the investor doesn’t have to provide those services. On the other
32 hand, a disadvantage is that a condominium appreciates at a much slower rate than
33 other units do.
34 Before an investor considers purchasing a condominium, it is important that they
35 check the restrictive covenants carefully. Sometimes condominiums and
36 cooperatives have rental restrictions that might clash with the investor's plans. It's
37 also important to find out if the condominium has any special assessments for
38 unusual expenses. Because the condominium is governed by an association, the
39 owner has less control over the costs.
40
41 • Fixer-uppers. Purchasing a fixer-upper for resale
42 could be a complicated, but profitable, proposition.
43 If the home is unattractive or undesirable because
44 of a defect that can be cured, it could be a good
45 investment.
46 Property that is in poor condition could be on
47 the market for a long period. When that happens,
48 opportunities become available in both price and
49 terms for this kind of property. Generally, the worse a property looks, the better the
50 deal an investor can make. Property in poor shape can often be purchased at a good
51 price with very attractive owner financing. Some of these properties may be in
52 foreclosure, being sold as part of an estate, or have already been foreclosed on and
53 are being held by a lender.

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1 If an investor buys an older property in need of repair and then makes it as

2 attractive as other properties in the neighborhood, the investor will significantly
3 increase the value of that property. One of the advantages is that the initial cost of
4 the property plus the cost of renovation could be far less than the value of the
5 comparable properties, making the profit potential for the renovated property
6 substantial.
7 In addition to repairs and improvements, investors must also consider renovation,
8 which is the replacement of outdated amenities, particularly kitchens and baths.
9 Money spent in renovating kitchens and bathrooms usually results in at least a two-
10 to-one ratio of increased value.
11
12 • Multifamily dwellings. Another category of
13 residential housing is referred to as multifamily
14 housing. Multifamily housing is usually
15 distinguished by its location, whether urban or
16 suburban, and its size, whether high-rise, low-rise,
17 or garden apartments.
18 Two- to four-family dwellings, such as
19 duplexes, triplexes, and fourplexes are sought after
20 investment vehicles, even though in certain areas they may be hard to find. These
21 units are relatively easy for investors who are new or inexperienced, are very popular
22 among investors, and usually have good resale value.
23 There are several laws that protect those who invest in one-to-four family
24 buildings that don't apply to larger buildings. These laws include prepayment
25 privileges, provision for late charges, and other consumer protection laws.
26 One of the reasons that these types of properties are so popular is that an
27 investor can choose to live in one of the units, while renting out the remaining units.
28 This helps the investor with the purchase of the property. While the initial rents may
29 not be enough to make the mortgage payment, the additional cash needed for the
30 payment will often be less than what the investor would pay for a comparable single-
31 family home. Although the investor cannot take depreciation on the apartment that
32 they live in, the investor can depreciate the other units in the building. This will help
33 in securing a net positive cash flow.
34
35 • Apartment building or complex. If the supply of
36 apartment homes is greater than the demand, it
37 will be easy for an investor to obtain an apartment
38 building or complex at an extremely fair price, often
39 at less than the current construction costs.
40 However, when this happens, an owner must be
41 able to withstand the temporary financial losses
42 they might incur due to excessive vacancies.
43 At times when money is tight and construction
44 costs are increasing, the construction of new apartment buildings falls off
45 dramatically and sometimes may even come to a standstill. When new construction
46 stops, the demand for apartments increases and the vacancy rate declines. This
47 stabilizes the rental market, and investors can raise their rents, allowing investors to
48 move from the position of a negative cash flow to either break-even or even a
49 positive cash flow.
50 When yields from apartment buildings rise, most investors are not interested in
51 selling unless they can get a premium price for the property. That tightens the
52 market, thereby causing interested investors to bid against one another for desirable
53 apartment buildings in key locations. If the bidding becomes intense, investors could

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1 end up paying a higher price for a property than the net operating income can
2 support. This might lead to rent increases on the property.
3 Then a cycle begins, with periods of high vacancy and lower rents, followed by
4 periods of low vacancy with higher rents. In order to deal with the ebb and flow of
5 these potential cycles, an investor must have enough capital to keep the property
6 going during the high vacancy, low rent times, at least until the investor can increase
7 the rents to reflect the fair market value of the property.
8
9 Mixed-Use Property
10
11 Mixed-use development is the practice of allowing
12 more than one type of use in a building or set of buildings.
13 In planning zone terms, this can mean some combination
14 of residential, commercial, industrial, office, institutional, or
15 other land uses. Mixed-use buildings combine several
16 unrelated or loosely related building uses into one
17 building.
18 For instance, consider a building that contains retail
19 and restaurant space at the ground floor, office space above, and residential units above
20 that. By not being devoted to a single use, these buildings bring more varied and interesting
21 life. They also create the opportunity for people to live close to their place of work.
22 Over time, zoning laws have been revised to allow for mixed-use buildings. A mixed-use
23 district will most commonly be the downtown of a local community, ideally associated with
24 public transportation. Mixed-use guidelines often result in residential buildings with street-
25 front commercial space.
26 Retailers have the assurance that they will always have customers living right above and
27 around them, while residents have the benefit of being able to walk a short distance to get
28 groceries and household items or see a movie. From an investor standpoint, a mixed- use
29 environment generates benefits that translate into higher rents and better leasing.
30
31 Commercial/Retail Properties
32
33 Commercial/Retail properties (or centers) differ in size and fall into categories with
34 distinct functions. Each center usually has a main tenant called an anchor tenant. It is often
35 essential to have a lease commitment from an anchor tenant before a lender will agree to
36 the financing for the shopping center.
37
38 • Shopping malls. By definition, a shopping mall is
39 a public area with a complex of shops with
40 associated walkways and parking areas. Many
41 shopping malls are enclosed or covered to allow
42 for the same climatic conditions year-round.
43
44 • Mega malls. Mega malls, also called super
45 regional centers, offer extensive variety in general
46 merchandise, clothing, furniture, and home
47 furnishings as well as a variety of other services
48 and recreational facilities. They are usually anchored by three or more full-line
49 department stores of at least 75,000 square feet each. One of these centers usually
50 has about one million square feet of leasable space.

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1 • Neighborhood centers. Neighborhood centers provide for the day-to-day living

2 needs of the immediate neighborhood. They are usually anchored by a supermarket
3 and have a total leasable space of 60,000 to 100,000 square feet. Tenants in the
4 neighborhood center are similar to the strip center and might include a drugstore,
5 laundry facility, barbershop, shoe repair shop, shipping store, and small restaurants.
6
7 • Outlet centers. An outlet center is a type of specialty center in that it does not fit into
8 any other category. It has its own focus, which is typically to sell the merchandise of
9 particular manufacturers at a discount. An outlet center is usually anchored by at
10 least two large discount stores and has a total leasable space of 100,000 to 300,000
11 square feet.
12
13 • Regional centers. Regional centers provide general merchandise, clothing,
14 furniture, and home furnishings as well as other services and recreational facilities.
15 They are anchored by one or two full-line department stores of at least 50,000
16 square feet each and have a total leasable space of about 500,000 square feet.
17 These centers provide services that are typical of a business district.
18
19 • Strip centers. Strip centers, also called
20 convenience centers, provide for the sale of
21 personal services and convenience goods. These
22 are usually anchored by a convenience store
23 (minimarket) and have a total leasable area of up
24 to 30,000 square feet. Tenants in a strip center
25 might include a dentist office, beauty salon, dry
26 cleaner, or small restaurant.
27
28 Industrial Properties
29
30 Industrial properties may be located in industrial areas or planned business parks or they
31 may be stand-alone buildings. Industrial property is typically divided into three primary
32 categories:
33
34 • Warehouse/distribution. Warehouse/distribution buildings focus on storage and
35 distribution of goods. They vary in size according to the type of goods being stored,
36 but, generally, they are large, flat sites with space for maneuvering trucks and
37 access to transportation facilities. They typically have a small amount of office space
38 to accommodate the purchasing, accounting, and marketing personnel. The
39 buildings usually have an
40 attractive front with lots of
41 windows for the office staff
42 and good truck access to
43 the back or side of the
44 building where the docks
45 and drive-in doors are
46 located.
47
48 • Manufacturing. Manufacturing buildings are large facilities designed to
49 accommodate the equipment for various manufacturing processes. Light
50 manufacturing buildings can be up to 300,000 square feet, while heavy
51 manufacturing can utilize up to one million square feet or more. These buildings
52 usually need large bay doors with at-grade or dock-high parking for the truck to
53 maneuver.

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1
2 • Flex. There is no clear-cut definition of flex space, but it is typically defined as
3 anything between offices and warehouses, usually combining the uses of both. Flex
4 buildings are often one- or two-story buildings ranging from 20,000 to 100,000
5 square feet. The use pattern is typically 25% office space to 75% warehouse space,
6 although the proportion in new buildings seems to be shifting in favor of more office
7 space.
8
9 REAL ESTATE INVESTMENT STEPS
10
11 The typical steps involved in the purchase of a real estate investment are listed below.
12 These steps are different from the steps involved in acquiring owner-occupied residential
13 properties.
14 1. Establish the investor’s desires.
15 2. Set up capital structure and resources.
16 3. Select a team of consultants and advisors.
17 4. Conduct initial property investigations.
18 5. Present a letter of intent for the selected purchase.
19 6. Negotiate the offer and acceptance.
20 7. Prepare the formal sale and purchase contract for
21 signatures.
22 8. Perform purchaser's due diligence.
23 9. Close the sale and legally transfer the title.
24
25 The purchaser's due diligence (step 8) should include three separate and detailed
26 feasibility studies and analyses. These are the market analysis, the property analysis, and
27 the financial analysis.
28
29 The Market Analysis
30
31 Part of performing due diligence is the market analysis. The
32 market analysis includes gathering data and analyzing
33 environmental impact issues, governmental regulations, and a
34 community profile.
35
36 • Environmental concerns. Environmental concerns include federal and state
37 environmental protection agency requirements, permits, and approvals. The market
38 analysis also looks at the issue of the presence of any hazardous substances on the
39 property as it is addressed in strict federal and state laws. [Comprehensive
40 Environmental Response, Compensation, and Liability Act (CERCLA)]
41
42 • Government regulations. The market analysis also addresses government
43 regulations that may affect the property, operations, or development. Such
44 governmental regulatory concerns require research into subdivision regulations, plat
45 approvals, and zoning. Zoning codes are of particular importance when setback
46 requirements and planned unit developments directly relate to the usage of the
47 property.
48
49 • Community profile. The market analysis includes a community profile that
50 accumulates and analyzes a great deal of information about the surrounding
51 neighborhood in which the subject property is located. This information provides
52 knowledge of the surrounding economy, occupancy rates, transportation, utilities,
53 facilities, and community acceptance.

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1 The Property Analysis

2
3 The property analysis includes gathering data and analyzing the following:
4
5 • Specifics about the site, both surface and subsurface features and characteristics
6 • Exterior and interior issues
7 • Operating expenses
8 • The possible presence of items, such as asbestos, lead-based paint, radon gas, and
9 toxic mold
10
11 The Financial Analysis
12
13 The financial analysis includes calculating and analyzing the following investment
14 measurements:
15
16 • Net operating income (NOI)
17 • Before-tax cash flow (BTCF)
18 • After-tax cash flow (ATCF)
19
20 The financial analysis is usually thought of as being the backbone of any acquisition of
21 an investment in the real estate industry. Remember that the investor “buys ugly houses.”
22 This means, like you learned in chapter 16 of the 63-hour pre-license course, that their
23 buying process is guided by the principle of progression. They look for the least expensive
24 home in the area and progress the value to the level of the others. When investors purchase
25 cash flow property, they use the same process. They look for “non-
26 performing/underperforming” property. Meaning they look for income producing properties
27 with old rent or in need of improvements. That will allow them to quickly increase the future
28 value of the property by bringing the rent up to market value or improving the condition of
29 the units, thereby justifying the higher rent. Remember that if the income increases and the
30 capitalization rate doesn’t change. the value will increase as well.
31
32 Net Operating Income (NOI)
33
34 Net operating income (NOI) is the term that describes the net income produced by a
35 specific property after all expenses have been deducted from the gross income. The net
36 operating income is affected by market rent, vacancy, and operating expenses.
37
38 • Market rent. Market rent, also known as economic rent, is the price that a specific
39 type of property is likely to draw under the current market conditions. The market rent
40 could be higher or lower than the amount the property is actually renting for under its
41 current lease. The rent depends on the national economic outlook, the economic
42 base of the property’s surrounding area, the demand for the type of space the
43 particular property provides in the local area, and the availability and supply of similar
44 competitive space.
45
46 • Vacancy. At any particular point in time, some of the space available in a building
47 might not be leased, thereby creating a vacancy. Some tenants leave after the lease
48 has expired. Some tenants even walk away from their lease before it expires. In
49 cases of newly constructed buildings, some of the space might not yet have been
50 rented.
51 In order to determine how much income a property might bring; an investor must
52 try to predict how much of the space will be occupied by tenants during the period in

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1 which the investor expects to hold the property. The investor must always allow for
2 periods of vacancy in the projections, even if the leasing activity is strong.
3 When a current tenant leaves, the owner needs time to make the space ready for
4 new tenants. Consequently, an investor must take into account and plan for some
5 loss of rent during the holding period.
6
7 • Operating expenses. Operating expenses include fixed expenses, variable
8 expenses, and a reserve for replacements.
9
10 o Fixed expenses (FE) include costs that do not change
11 with the level of occupancy, such as real estate taxes Fixed
Variable Expenses
12 and hazard insurance. Expenses (FE)
(VE)
13
14 o Variable expenses (VE) change with the level of
15 occupancy and include management fees, Reserve for
Replacements
16 maintenance, utilities, yard care, and janitorial (R)
17 services.
18
19 o Reserve for replacements (R) is money that is reserved for future use to replace
20 worn-out components, called short-lived items, such as carpeting, appliances,
21 central heat and air conditioning systems, and roof coverings.
22
23 Note: Mortgage payments, called debt service, are not considered an operating
24 expense. The mortgage is an expense of the investor, not of the property’s
25 operation.
26
27 Calculating the Net Operating Income
28
29 Once an investor has estimated the market rent for property, the vacancy rate, and
30 operating expenses, they can calculate the potential net operating income that they can
31 receive from the property. This estimate assumes that the space is rented at current market
32 rents. You should already be familiar with the following simplified version of a financial
33 analysis of any investment property:
34
35 PGI Potential Gross Income
36 - V&C Vacancy and Collection Losses
37 + OI Other Income
38 EGI Effective Gross Income
39 - OE Operating Expenses (FE + VE + R)
40 = NOI Net Operating Income
41
42 Example: Calculating the net operating income.
43
44 A property has a potential gross income (or PGI) of $45,000. The vacancy and
45 collection (V&C) loss for the year was $4,000. There was no other miscellaneous income
46 (OI). The property had operating expenses (OE) of $20,000. The net operating income
47 for this property is $21,000.
48
49 $45,000 PGI
50 - 4,000 V&C
51 + 0 OI
52 $41,000 EGI
53 - 20,000 OE
54 $21,000 NOI
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1 Before-Tax Cash Flow (BTCF)

2
3 It is an investor’s goal for an investment property to yield a positive cash flow. Cash flow
4 is equal to the cash received minus the cash paid out over a given period. Before-tax cash
5 flow (BTCF) is the measure of the cash that is received after the net operating income has
6 been calculated and any mortgage-related expenses are paid, but before taxes are taken
7 into consideration.
8
9 Example: Calculating the before-tax cash flow (BTCF)
10
11 An investor has a property that has an NOI of $65,000 and mortgage expenses
12 equal to $22,000. The investor’s before-tax cash flow is $43,000.
13
14 $65,000 NOI
15 - 22,000 Mortgage Expenses
16 $43,000 BTCF
17
18 After-Tax Cash Flow (ATCF)
19
20 The after-tax cash flow (ATCF) is the profit that the investor actually receives from
21 income-producing property after the income taxes are paid. It is the before-tax cash flow,
22 minus the tax liability.
23
24 • Income tax liability. An investor’s income tax liability from a property is based on
25 taxable income rather than on cash flow. Taxable income is net operating income
26 minus all allowable deductions, including the amount allowed for annual depreciation
27 on the property (also referred to as cost recovery). Taxable income multiplied by the
28 investor’s marginal tax bracket results in the investor’s tax liability.
29
30 NOI Net Operating Income
31 - Deductions Allowable Deductions (Depreciation + Mortgage Interest)
32 Taxable Income
33 x Tax Bracket Marginal Tax Bracket
34 Tax Liability Investor’s Income Tax Liability
35
36 Example: Calculating the income tax liability
37
38 If an investor has a taxable income of $35,000 and is in the 33% tax bracket, the tax
39 liability for that investor will be $11,550.
40
41 $35,000 Taxable Income
42 x .33 Marginal Tax Bracket (33% = .33)
43 $11,550 Income Tax Liability
44
45 Example: Calculating the after-tax cash flow (ATCF)
46
47 As we said above, after-tax cash flow is before-tax cash flow minus tax liability.
48 Therefore, if the investor above with the $11,550 tax liability had a before-tax cash flow
49 of $43,000, the after-tax cash flow would be $31,450.
50
51 $43,000 BTCF
52 - 11,550 Income Tax Liability
53 $31,450 ATCF

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1 REAL ESTATE TAXATION

2
3 You should have a basic understanding of the tax aspects of real estate transactions
4 since many clients will have questions regarding these issues. Investors rely on various tax
5 benefits to help realize profit on their real estate investments. You should have some idea of
6 when to recommend that a client seek the advice of a CPA to discuss the tax implications of
7 a potential sale or investment.
8
9 Income Taxes in the U.S.
10
11 As you know, most Americans pay taxes on the money they earn. The marginal tax rate
12 is the amount of tax paid on an additional dollar of income. This tax rate increases as
13 income increases. Under a marginal tax rate, taxpayers are divided into tax brackets, or
14 ranges. As income increases, what is earned will be taxed a higher rate than the first dollar
15 earned. The tax bracket that applies to income ranges is called the marginal tax bracket.
16 The current tax brackets are 10, 15, 25, 28, 33, 35, and 39.6%.
17 In addition, the tax rates apply only to taxable income. Various adjustments and
18 deductions, including the standard deduction and personal exemptions, all lower a person's
19 taxable income. Taxable income is usually less than a person’s total income.
20
21 Real Estate Deductions and Exemptions
22
23 The IRS allows certain real estate deductions and exemptions on an itemized income
24 tax return.
25
26 • Exemption for sale of primary residence. The Taxpayer Relief Act of 1997
27 established new tax treatment for homeowners when the sale of a principal
28 residence occurred. For taxpayers who are married, file their tax return jointly, and
29 who have owned and used the property as a principal residence for at least two of
30 the previous five years prior to sale, the law exempts the first $500,000 gained from
31 the sale. Single homeowners can exclude up to $250,000 in gains from taxation.
32
33 • Property tax deduction. State and local property taxes can be deducted as an
34 expense against the owner’s income; however, the real estate taxes are only
35 deductible in the year in which they are actually paid to the government. Taxes on
36 non-income property are included as itemized deductions on Schedule A of the
37 personal return. Deductions for investment property are taken on Schedule E, which
38 is a special schedule for that purpose. Property taxes can be deducted for any or all
39 of the following:
40
41 o Personal residence
42 o Second home
43 o Time-share property
44 o Vacant lot or land
45 o Income property
46 o Inherited property
47
48 • Mortgage interest deduction. A mortgage interest deduction is allowed on a
49 qualified home, namely the main or second home. That home may be a house,
50 condominium, cooperative, mobile home, house trailer, or boat that has sleeping,
51 cooking, and toilet facilities. The homeowner can usually deduct all of the mortgage
52 interest as long as they itemize the deductions and are legally liable for the loan. A
53 person cannot deduct interest on payments they make on someone else’s loan.

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1 Interest paid on a mortgage that is not the primary or second home may be
2 deductible if the loan proceeds are for business, investment, or other deductible
3 uses. If not, the interest would be considered personal and cannot be deducted.
4
5 Basis of Property
6
7 Basis is the amount of the investment in property for tax purposes. The basis is used to
8 determine gain or loss on the sale, exchange, or other disposition of property. Basis is also
9 used to figure deductions for depreciation, amortization, depletion, and casualty losses.
10 The original basis in property is adjusted (increased or decreased) by certain events. For
11 example, the basis is increased if improvements are made to the property. The basis is
12 reduced if deductions are taken for depreciation or casualty losses, or if certain credits are
13 claimed.
14 The seller of a principal residence may owe tax on any capital gain resulting from the
15 sale of his or her home. The IRS defines gain on the sale of a home as the amount realized
16 from the sale minus the adjusted basis of the home sold.
17
18 • Cost basis. The cost basis for property is usually its initial cost. The cost basis is the
19 amount paid in cash, debt obligations, other property, or services to purchase the
20 property. The cost basis also includes other settlement costs such as legal and
21 recording fees, survey fees, utility installation charges, transfer taxes, and owner’s
22 title insurance. Any amounts the seller owes that the buyer agrees to pay, such as
23 back taxes or interest, recording or mortgage fees, charges for improvements or
24 repairs, and sales commission may also be included in the cost basis.
25 The costs basis does not include the following items:
26
27 o Amounts placed in escrow for future payments, such as taxes and insurance
28 o Casualty insurance premiums
29 o Rent or utility charges for occupancy of the property before closing
30 o Charges connected with getting a loan, such as points, mortgage insurance
31 premiums, assumption fees, cost of a credit report, and fees for an appraisal
32 required by a lender
33 o Fees for refinancing a mortgage
34
35 • Adjusted basis. Adjusted basis is a measurement of how much is invested in the
36 property for tax purposes. When a property is purchased, the beginning basis is the
37 cost of acquiring the property. The beginning basis is increased or decreased by
38 certain types of expenditures made while the property is owned. The result is the
39 adjusted basis.
40 Basis is increased by the cost of capital improvements made to the property,
41 assessments for local improvements, casualty losses such as restoring damaged
42 property, certain legal fees, and zoning costs. Assessments for local improvements
43 such as water connections, extending utility service lines to the property, roads, and
44 sidewalks also increase the basis. Increases include costs of any improvements
45 having a useful life of more than 1 year. Examples of capital improvements include:
46
47 o Putting an addition on the home
48 o Paving the driveway
49 o Replacing an entire roof
50 o Installing central air conditioning
51 o Rewiring the home

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1 Basis is decreased by any items that represent a return of capital for the period
2 during which the property is held. Decreases include depreciation and casualty
3 losses. Examples of decreases include:
4
5 o Exclusions from income of subsidies for energy conservation measures
6 o Casualty or theft loss deductions and insurance reimbursements
7 o Postponed gain from the sale of a primary home when acquiring this home
8 o Residential energy credits
9 o Depreciation
10 o Amount received for granting an easement
11
12 The basic formula for adjusted basis is:
13
14 Adjusted basis = Initial Cost Basis + Increases – Decreases
15
16 Example: Calculating the adjusted basis
17
18 Larry and Mary originally paid $100,000 for their home. They spent an
19 additional $5,000 on a new central heating and cooling unit. Their adjusted basis
20 at the time of selling it is $105,000.
21
22 $100,000 Beginning Basis
23 + 5,000 Capital Improvements
24 $105,000 Adjusted Basis
25
26 Example: Sample calculation of adjusted basis from the IRS
27
28 A duplex used as rental property originally cost $40,000, of which $35,000
29 was allocated to the building and $5,000 to the land. An improvement was added
30 to the duplex that cost $10,000. In February last year, the duplex was damaged
31 by fire. Up to that time, $23,000 had been allowed for depreciation.
32 The owner sold some salvaged material for $1,300 and collected $19,700
33 from the insurance company. They deducted a casualty loss of $1,000 on their
34 income tax return for last year.
35 The owner spent $19,000 of the insurance proceeds for restoration of the
36 duplex, which was completed this year. The duplex's adjusted basis after the
37 restoration will be used to determine depreciation for the rest of the property's
38 recovery period. Figure the adjusted basis of the duplex as follows:
39
40 Original cost of duplex $35,000
41 Addition to duplex $10,000
42
43 Total cost of duplex $45,000
44 Minus: Depreciation $23,000 ($23,000)
45 Adjusted basis before casualty $22,000
46 Minus: Insurance proceeds $19,700
47
48 Deducted casualty loss $1,000
49 Salvage proceeds $1,300 ($22,000)
50 Adjusted basis after casualty $0
51
Add: Cost of restoring duplex $19,000 $19,000
52
53 Adjusted basis after restoration $19,000

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1 • Amount realized. The amount realized, also known as net proceeds from sale, is
2 expressed by this formula:
3
4 Amount Realized = Sale Price – Costs of Sale
5
6 The sale price is the total amount the seller receives for the home including
7 money, notes, mortgages, or other debts the buyer assumes as part of the sale.
8 The costs of sale include brokerage commissions, relevant advertising, legal
9 fees, seller-paid points, and other closing costs paid by the seller.
10
11 Example: Calculating the amount realized
12
13 Larry and Mary sold their home for $175,000. Their selling costs, including the
14 commission they paid Broker Betty and amounts paid to inspectors, a surveyor, and
15 the title company, amounted to 10% of the selling price, or $17,500. The amount
16 they realized from the sale was $157,500.
17
18 $175,000 Sale Price
19 - 17,500 Costs of Sale
20 $157,500 Amount Realized
21
22 Capital Gains and Losses
23
24 Gain or loss is usually realized when property is sold or
25 exchanged.
26 Capital gains and losses are classified as long-term or
27 short-term, depending on how long the property is held
28 before it is sold. If the property is held more than one year,
29 the capital gain or loss is long-term. If the property is held one year or less, the capital gain
30 or loss is short-term. If capital assets such as stocks, collectibles, or real property are held
31 for longer than a year, any profits on the sale are taxed at a reduced rate.
32
33 Capital Gains
34
35 A capital gain is the amount realized from the sale or exchange of property that is more
36 than its adjusted basis. A realized capital gain is an investment that has been sold at a
37 profit. An unrealized capital gain is the potential gain on an investment if it were to be sold.
38 For most investments sold at a profit, the individual will owe the IRS capital gains tax.
39 The gain on the sale of a primary residence is represented by the basic formula:
40
41 Gain = Amount Realized – Adjusted Basis
42
43 Example: Calculating the gain on sale
44
45 Using the simple examples above for Larry and Mary in the previous section, the
46 gain on the sale would be calculated as follows:
47
48 $175,000 Sale Price $157,500 Amount Realized
49 - 17,500 Costs of Sale - 105,000 Adjusted Basis
50 $157,500 Amount Realized $52,500 Gain on Sale
51
52 $100,000 Beginning Basis (of old home)
53 + 5,000 Capital Improvements
54 $105,000 Adjusted Basis (of old home)
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1 In the case of Larry and Mary, their capital gain was $52,500. However, they will not
2 owe tax on this amount in the year in which they sell their home because they qualify for
3 the Taxpayer Relief Act’s $500,000 exclusion for married couples who file their tax return
4 jointly.
5 Different types of income are taxed at different rates. Most taxpayers pay income tax at
6 their marginal tax rate. Income from some investments may be tax-deferred. Other income
7 may be taxed at a lower rate. The gain on the sale, if it does not qualify for exclusion under
8 current tax law, is taxable.
9 The tax rates that apply to net capital gain are generally lower than the tax rates that
10 apply to other income.
11 A summary of the current capital gain tax rates for taxable income ranges follows:
12
13 Married Capital Gain
14 Single Taxpayer
Filing Jointly Tax Rate
15 $0 - $36,250 $0 - $72,500 0%
16
$36,251 - $400,000 $72,501 - $450,000 15%
17
18 $400,001 + $450,001 + 20%
19
20 Capital Losses
21
22 A capital loss is the adjusted basis of the property that is more than the amount realized
23 from the sale or exchange. An individual has a capital loss if they sell an asset for less than
24 the purchase price. Capital losses can reduce capital gains.
25 Capital losses may only be deducted on investment property, not on property held for
26 personal use. If the capital losses exceed the capital gains, the excess can be deducted on
27 the tax return and used to reduce other income, such as wages, up to an annual limit of
28 $3,000, or $1,500 if married filing separately.
29
30 Gains and Losses on Investment Property
31
32 Similar to the sale of a primary residence, the gain on an investment property is the
33 amount realized that is more than the property’s adjusted basis. If the long-term gains are in
34 excess of the long-term losses, there is a net capital gain.
35
36 How to Figure Whether You Have a Gain or Loss
37
38
39 IF the... THEN there is a...
40
Adjusted basis is more than the amount realized, Loss.
41
42 Amount realized is more than the adjusted basis, Gain.
43
44
45 Example: Calculating gain on investment property
46
47 On June 20, 2010, Gary purchased an apartment building on the following terms:
48 $100,000 in cash at closing, with Gary taking the title subject to an existing mortgage
49 note, which had a remaining balance of $400,000. Gary also signed a note and second
50 mortgage for $50,000. He paid $5,000 into a property tax and insurance escrow account,
51 and paid $300 for the seller’s prepaid water bill, $800 for heating oil that remained in the
52 building’s tanks, and $50 for document recording. He also paid $1,500 for legal
53 representation, $300 for an owner's title insurance policy, $475 for a lender's title
54 insurance policy and $180 for a credit report. Gary's initial tax basis is $551,850.
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1 $100,000 Cash Down Payment

2 + 450,000 First Mortgage ($400,000) + Second Mortgage ($50,000)
3 $550,000 Purchase Price
4
5 $550,000 Purchase Price
6 + 1,850 Attorney ($1,500) + Title Policy ($300) + Recording Fee ($50)
7 $551,850 Beginning Basis
8
9 Note: All the other money Gary paid out represents his costs of obtaining financing
10 or is incidental to the purchase and cannot be included in the calculation of the
11 beginning basis.
12
13 Gary sold his property on December 2, 2013, for $970,500. While he held the
14 property, he made $50,000 in capital improvements and was able to take $70,000 in
15 depreciation. He also paid selling expenses of $25,000. Gary’s gain on the sale is
16 $463,650.
17
18 $551,850 Beginning Basis
19 + 50,000 Capital Improvements
20 $601,850
21 - 95,000 Depreciation ($70,000) + Costs of Sale ($25,000)
22 $506,850 Adjusted Basis
23
24 $970,500 Amount Realized
25 - 506,850 Adjusted Basis
26 $463,650 Gain on Sale
27
28 Depreciation
29
30 Depreciation means the reduction in the value of an asset due to usage, passage of
31 time, wear and tear, technological outdating or obsolescence, depletion, or other such
32 factors.
33 Tax depreciation is a deduction that allows an investor to write off the cost of his or her
34 investment in income-producing property over a prescribed period. The recoupment of the
35 purchase price of the property through depreciation is known as cost recovery.
36 For tax purposes, depreciation is computed by using the Modified Accelerated Cost
37 Recovery System (MACRS). The MACRS stipulates the time periods over which investment
38 real estate can be depreciated for tax purposes. The time period begins when the property
39 is placed in service, which, essentially, means the time in which title is taken.
40 Tax law currently allows the owners of residential and low-income investment properties
41 to depreciate a portion of their investment over 27.5 years on a straight-line basis. The
42 residential category includes single-family rentals, all apartment rentals, and mobile homes.
43 The owners of nonresidential investment properties may depreciate a portion of their
44 investment over 39 years, also on a straight-line basis. Hotels and motels are classified as
45 nonresidential.
46 To calculate the amount of the allowable deduction, the total cost of acquisition,
47 including the total cost of the property plus closing costs, is allocated on a percentage
48 basis to the land and improvements. The basis for depreciation is that portion of the total
49 cost, including closing costs, which applies to the improvements. Land cannot be
50 depreciated. This amount is evenly divided by the number of years allowed, either 27.5
51 or 39, depending on the type of property. That is what is meant by straight-line; the same
52 dollar amount is deducted each year. This percentage can be calculated by having an
53 appraisal made or using the percentages of land and improvements utilized by the

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1 property appraiser’s office. The basis is reduced each year by the amount allowed until
2 the total depreciable basis equals zero or the property is sold.
3
4 Example: Calculating depreciation
5
6 An investor owns a single-family residence that he rents out. The home cost
7 $150,000 and the land is worth $40,000, leaving an improvement value of $110,000. If
8 the investor divides the $110,000 by 27.5 years, he will have a depreciation figure of
9 $3,636.36 per year. Therefore, he can deduct $4,000 per year for depreciation on this
10 property.
11
12 $150,000 Home Cost
13 - 40,000 Land Value
14 $110,000 Improvement Value
15
16 $110,000 Improvement Value ÷ 27.5 Years = $4,000 Depreciation
17
18 When an investor sells a depreciable asset, the depreciated value is used to compute
19 the taxable gain on the sale.
20
21 Example: Calculating the taxable gain by using the depreciated value
22
23 Let’s use our previous example of Gary’s apartment building.
24
25 $551,850 Beginning Basis
26 - 70,000 Depreciation
27 $481,850 Adjusted Basis
28
29 $970,500 Sale Price
30 - 481,850 Adjusted Basis
31 $488,650 Taxable Gain on the depreciated property
32
33 Therefore, the basis of a depreciable asset is reduced by any depreciation the property
34 owner took during the time they held the property.
35 The above example is a simplified calculation. It did not take into account any
36 improvements Gary made to the property or any other expenses he may be eligible to
37 deduct to arrive at his final taxable gain on the sale.
38
39 Note: Tax depreciation is an accounting concept only – taken on paper. In reality, the
40 property that is being depreciated may actually appreciate in value. Appreciation refers to
41 the increase in value of an asset over time. When a property sells, the investor may have to
42 pay tax on the real appreciation and the recapture of the artificial tax depreciation.
43
44 Tax Shelter
45
46 A tax shelter is any investment that is designed to
47 reduce or avoid income taxes. In real estate investment,
48 as a property appreciates in value, the investor is allowed
49 a paper deduction for depreciation. Mortgage interest is
50 also a deductible allowance.

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1 Example: Calculating a tax shelter

2
3 Investor Diane purchases an income-producing property that provides a tax shelter.
4 In the first year, the property produces a net operating income of $300,000. The
5 mortgage payments on the property are $90,000, of which $80,000 is interest. The first-
6 year depreciation on the property is $75,000, which reduces the taxable income
7 considerably.
8
9 $300,000 Net Operating Income
10 - 155,000 Interest ($80,000) + Depreciation ($75,000) Deductions
11 $145,000 Taxable Income
12
13 Sometimes, the allowable deductions can result in a loss, especially in the early years of
14 the investment. These non-cash losses can be deducted from income to reduce the
15 investor’s tax liability.
16
17 Example: Deductions resulting in a loss
18
19 Investor Rich’s income-producing property produces a net operating income of
20 $100,000 in the first year. The mortgage payments on the property are $80,000, of which
21 $75,000 is interest. Rich's before-tax cash flow (BTCF) is $20,000. However, the first-
22 year depreciation on the property is $50,000, which generates a tax loss as shown
23 below.
24
25 $100,000 Net Operating Income
26 - 125,000 Interest ($75,000) + Depreciation ($50,000) Deductions
27 ($25,000) Taxable Income (Loss)
28
29 Rich not only pays no tax on the $20,000 cash flow, but he might be allowed to
30 shelter $25,000 of income from other sources.
31
32 Property Exchange
33
34 If an investor participates in an exchange of a like-kind asset, any taxable gain or tax-
35 deductible loss is not recognized in the year the transaction takes place. Rather, the investor
36 can defer those gains or losses, until a future taxable transaction occurs involving a
37 substitute property. Like-kind property exchanges are sometimes wrongly called tax-free
38 exchanges. They are not tax-free; they are tax deferred.
39 The legislation that deals with like-kind exchanges is contained in Section 1031 of the
40 IRS code. Because of this, these exchanges are sometimes called Section 1031 exchanges.
41 To qualify under Section 1031, there must be a legitimate exchange of the assets involved.
42 Therefore, it is important for investors to make certain that all proper steps are taken by all
43 parties involved in the transaction so the transaction can be documented as a bona fide
44 exchange.
45 To qualify as a like-kind exchange, the property being transferred must have been held
46 for productive use in a trade or business or held as an investment and must be exchanged
47 for property that will also be used in a trade or business or be held as an investment.
48 Qualifying properties can fall into either of these categories. In other words, a property that
49 is used in a trade or business may be exchanged for an investment property and vice versa.
50 This is also known as a tax-deferred exchange.

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1 Properties that are eligible for like-kind exchange include:

2
3 • Apartments and residential rentals
4 • Commercial property
5 • Industrial property
6 • Farms
7 • Leaseholds greater than 30 years
8 • Unimproved land (non-dealer held property)
9 • Hotels or motels
10
11 The properties must be like-kind in nature or character, not in use, quality, or grade. Real
12 estate investors must realize that one property can be exchanged for another property
13 regardless of the property type, as long as it is held as an investment or for use in a trade or
14 business. In addition, a single property can be exchanged for several properties. Here are
15 some examples:
16
17 • Trade or business property, together with cash, for other trade or business property
18 • Metropolitan property for a farm or ranch
19 • Improved investment property for unimproved investment property
20 • A leasehold, with for at least 30 years to run, for a freehold
21 • Mineral interest in land to for a fee title in real estate
22
23 Note: Property in the United States and property in foreign countries are not considered
24 like-kind under Section 1031.
25
26 Taxable Gain on an Exchange
27
28 An exchange is tax-deferred if there is a straight trade, meaning that a property is
29 exchanged for one of equal value. However, often that is not the case. If the properties are
30 not of equal value, one party may receive cash or mortgage relief to equalize the
31 transaction. Any cash or relief one party receives in addition to the actual property is called
32 boot. The person who receives the boot has a net gain and must pay taxes on it. In a
33 situation like this, the exchange is not fully tax-deferred, only partially so.
34 Exchanges are particularly popular among investors who own apartment buildings and
35 commercial real estate. Many of these owners are already in high income tax brackets, so
36 exchanging gives them the opportunity to acquire more valuable property without the high
37 tax consequences. They can keep their money invested in real estate holdings by rolling
38 over the properties, which mimics selling and buying at the same time.
39
40 WORKING WITH INVESTMENT PROPERTY
41
42 If you are interested in pursuing opportunities in the real estate investment arena, then
43 you should arm yourself with additional knowledge by taking commercial real estate
44 seminars as well as investment and property management classes that are available.
45 In addition, the CCIM (Certified Commercial Investment Member) designation is
46 available through the CCIM Institute. You can earn the CCIM designation by completing a
47 curriculum that covers market analysis, property analysis, financial analysis, decision
48 analysis, negotiation, and ethics. A CCIM has to demonstrate a completed portfolio of
49 commercial real estate experience and successfully pass a comprehensive examination.
50
51 For more information on the CCIM,
52 please visit the CCIM Institute website at www.ccim.com.
53
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CHAPTER 12 REVIEW QUESTIONS

1. The three main characteristics of investment property that must be weighed in an

investment decision are , , and .
is the chance of experiencing a loss. A greater chance of experiencing a loss
typically results in a greater potential on the investment.
2. A asset can be sold rapidly, with minimal loss of value, anytime within market
hours. An asset is one which is not readily saleable. Cash is the most
asset. Property is considered an asset.
3. is the use of borrowed funds to increase the potential return of an
investment. The ratio of the amount borrowed to the financed property market value is
the ratio.
4. There are many types of investment properties. (1) can be multi-
or single-tenant buildings that vary in size and location. (2) property is
usually purchased to (for appreciation over time) or to (to sell quickly for a
profit). (3) property includes malls. (4) property includes
warehouses and manufacturing facilities.
5. in the purchase of an investment property includes a market analysis,
which consists of an analysis of concerns, regulations,
and a profile.
6. Net operating income (NOI) is the term that describes the income produced by a specific
property after all have been deducted from the
7. Operating expenses include expenses, expenses, and .
8. is equal to the cash received minus the cash paid out over a
given period. An investor’s goal is to yield a .
9. The is equal to the net operating income (NOI)
minus mortgage expenses, before taxes. The is
the profit that the investor actually receives from income-producing property after the
income taxes are paid.
10. The tax rate that applies to various ranges of income is called the .
11. Tax rates only apply to , which is usually than
a person’s total income due to various deductions and exemptions.
12. is the amount of the investment in property for tax purposes and is used to
determine gain or loss upon sale. The for property is usually its initial
cost. The is a measurement of how much is invested in the property
for tax purposes, and is determined by increasing or decreasing the for
certain types of expenditures.
13. A capital gain is the amount realized by the sale of property that is more than its .
A capital gain is an investment that was sold at a profit. An capital
gain is the potential gain if it were to be sold. can reduce capital
gains.
14. is a tax deduction used by investors to write off investment costs over a
period of time on a ; years for residential property and years
for non-residential property.
15. of the IRS code deals with like-kind exchanges, allowing an investor to
the taxation of gains or losses. The properties must be for investment use or use in a
trade or business.
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CHAPTER 12 PRACTICE EXAM

1. Which of the following methods is 5. Due diligence is the collective term

NOT used by a person to realize given to the data gathering and
profits from a real estate investment? analysis step that is critical to making
a. Tax benefits a real estate investment decision.
b. Positive cash flow Which of the following would NOT be
c. Negative amortization included in this due diligence?
d. Appreciation a. Market analysis
b. Property analysis
2. Which property exchange would c. Financial analysis
definitely NOT be eligible for a like- d. Capital gain/loss analysis
kind 1031 exchange?
a. An apartment building in New York 6. What is the purpose of a tax shelter in
with a like-kind apartment building in real estate investment?
Toronto a. To increase the rate on capital gains
b. A business property in Atlanta, GA b. To reduce or avoid income taxes
together with cash for a business through tax deductions and
property in Gainesville, FL depreciation
c. An investment property in Miami, FL c. To hide income from the IRS
for a farm in Ocala, FL d. To off-load the tax liability to a third
d. Improved investment property for party
unimproved investment property
where both properties are in 7. What is the term given to the profit
Tallahassee, FL that the investor actually receives
from income-producing property after
3. Unimproved land is considered the the income taxes are paid?
riskiest type of investment property. a. Before-tax cash flow
Which factor does NOT contribute to b. After-tax cash flow
this risk? c. Net operating income
a. No management costs d. Tax basis
b. Negative cash flow
c. No depreciation benefits from 8. An investor’s rate of return on an
property improvements investment exceeds the cost of
d. Unexpected adverse effects from borrowing. What term best describes
zoning changes or building this situation?
restrictions a. Capital gain
b. Capital loss
4. Which term refers to an investment c. Positive leverage
that has been sold at a profit? d. Negative leverage
a. Adjusted basis
b. Amount realized 9. Which type of investment property
c. Realized capital gain would typically be best suited for
d. Unrealized capital gain “flipping”?
a. An occupied high-rise office building
b. A residential “fixer-upper”
c. A new apartment building
d. An industrial warehouse facility

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 Real Estate Investing and Taxation 325

10. Which measurement value is NOT 13. What is the time period established
used to determine an investor’s net by the IRS over which nonresidential
operating income (NOI)? investment real estate can be
a. Market rent depreciated?
b. Vacancy and collection loss a. 39 years
c. Operating expenses b. 27.5 years
d. Debt service c. 22 years
d. As long as the investor holds the
11. The IRS allows certain real estate property
deductions and exemptions on an
itemized return. Which item is NOT 14. What does the term “liquidity” refer to
allowable? in the real estate market?
a. Exempt first $250,000 (if single) a. The ability to reduce investment
gained in the sale of a primary expenses while increasing income
residence owned for 6 years; b. The flow and balance of income and
$500,000 if married filing jointly expenses for an investment property
b. Deduct mortgage interest paid on a c. The range of investments based on
family member’s primary home loan existing market segment holdings
c. Deduct property tax paid in the year d. The speed or degree to which
of the deduction for income property property can be sold in the market
d. Deduct mortgage interest on a without affecting the price
primary home
15. After holding a property for ten
12. The adjusted basis is a measurement months, investor Sally sold a low-rise
of how much is invested in a property office complex for a profit of $24,000.
for tax purposes. Which item What is the term that best describes
decreases the adjusted basis? her profit?
a. Roof replacement a. Long-term gain
b. Assessment for road widening b. Extended-term gain
c. Restoration of damaged property c. Short-term gain
d. Depreciation d. Protracted-term gain

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Florida Real Estate Sales Associate Post-License Course Reicon Publishing, LLC
 CHAPTER

BECOMING A BROKER
OR MANAGER

OVERVIEW Becoming a licensed real estate broker who works for a

brokerage company is one thing. Owning and managing a real estate
firm is something altogether different. Making the decision to start
your own brokerage firm is a big step and one that needs careful
consideration and planning. A broker has several responsibilities.
They must be an effective salesperson, a business manager, a
financial analyst, a marketer, a personnel manager, and a leader. In
addition, to being able to run a successful business, they must be
very knowledgeable of the real estate law.
Many times, successful salespeople want to become managing
brokers and have their own brokerage business, only to discover how
truly difficult it is. For that reason, in this chapter, we cover some of
the topics that a prospective brokerage company owner must face
when going into business.

OBJECTIVES After completing this chapter, you should be able to do all of the
following:

• Identify the various real estate specialties and forms of

organization
• Discuss a number of business models from which a broker
can choose
• Explain the important aspects to consider in a good business
plan
• Discuss recruiting practices and the training of associates
• Know the qualities to look for and the traits to avoid in an
office manager

1 BUSINESS PLANNING
2
3 Are you thinking about becoming a broker? If you are, that probably means you have
4 been successful as a sales associate and are considering taking your business to the next
5 level and striking out on your own. One thing is certain, the opportunities are endless, and
6 the potential for growth is substantial.
7 The move to broker is a big decision and requires substantial planning. Henry
8 Wadsworth Longfellow said, “It takes less time to
9 do a thing right, than it does to explain why you
10 did it wrong.” That certainly applies here. You’ll
11 need to look carefully at a number of matters to
12 help plan your best course of action.
13 Two fundamental considerations to getting
14 started are the area of specialty for your business
15 and the form of your organization.

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1 Specialties
2
3 Just as there are possible areas of specialty for sales associates, there are also several
4 brokerage specialties from which to choose as your basis. This does not mean that you are
5 locked into only that particular type of real estate, but, in most successful brokerage
6 operations, the majority of business comes from a single specialty.
7
8 • Business brokerage. Business brokerage specializes in helping small business owners
9 in the buying and selling process. Business brokers typically estimate the value of the
10 business; advertise it for sale with or without disclosing its identity; handle the initial
11 potential buyer interviews, discussions, and negotiations with prospective buyers;
12 facilitate the progress of the due diligence investigation, and generally assist with the
13 business sale.
14
15 • Commercial brokerage. Commercial brokerage specializes in selling or leasing
16 income-producing properties such as malls, office parks, restaurants, gas stations,
17 convenience stores, and office towers. The businesses that occupy commercial real
18 estate usually lease the space. An investor usually owns the building and collects rent
19 from each business that operates there.
20
21 • Residential brokerage. Residential brokerage specializes in selling homes,
22 condominiums, cooperatives, and other properties designed to be used as living space.
23
24 • Industrial brokerage. Industrial brokerage specializes in selling or leasing property
25 used for industrial purposes. This includes factory-office multiuse property, factory-
26 warehouse multiuse property, heavy manufacturing buildings, industrial parks, light
27 manufacturing buildings, and research and development parks.
28
29 • Property management. Property management specializes in managing different types
30 of property owned by others. The property manager acts on behalf of the owner to
31 maintain the property’s value while generating income. The manager is typically paid a
32 fee and/or a percentage of the generated income while the management contract is in
33 force. Managed properties can be residential, commercial, or industrial.
34
35 Forms of Organization
36
37 Several forms of organization can accommodate ownership by one or several individuals
38 or entities. Sole proprietorship, partnership, and corporation are examples of different forms
39 of organization. A brokerage business can also be franchised or independent.
40 The different forms of ownership have a number of legal and tax implications. You
41 should always consult with an attorney and a tax professional before making a decision.
42
43 Sole Proprietorship
44
45 A sole proprietorship is a business formed by an individual.
46 The individual is personally liable for their actions and can be
47 sued individually. A sole proprietor is also liable for the acts of
48 their employees when the acts are within the scope of the
49 employee’s employment.
50 A sole proprietor broker can register and operate as a real
51 estate broker if they have a current active and valid broker’s
52 license. A broker can operate in their personal name or under a trade name.
53 [F.A.C. 61J2-10.034]

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1 Partnership
2
3 The principal characteristic of a partnership is that
4 each partner is personally liable for the partnership
5 business and, therefore, may be sued individually. The
6 acts of one partner within the scope of the partnership
7 business are also binding on other partners whether they
8 knew about or took part in the acts or not. Partners are
9 jointly (together) and severally (individually) liable for all
10 debts and liabilities of the partnership. If a partnership is
11 sued, the partners are named personally and as partners
12 of the partnership.
13 A real estate brokerage partnership must have at least one partner licensed as an active
14 broker. A broker with an inactive license and an unlicensed person can be partners but
15 cannot perform real estate services. However, they must register with the Department. All
16 partners, who provide real estate services to the public either directly or indirectly, must hold
17 an active broker’s license. A sales associate or broker associate cannot be a partner in a
18 real estate brokerage partnership. [F.A.C. 61J2-4.007 and 61J2-5.016]
19 A real estate brokerage partnership must be registered with the Department in the name
20 of the partnership. [F.S. 475.15]
21 In the event that a partnership has only one active broker, and the broker dies or
22 resigns, the vacancy must be filled within 14 calendar days. During this time period, the
23 partnership may conclude any business that was already in progress but may not acquire
24 any new brokerage business. No new business may be performed until a new active broker
25 is appointed and registered. Failure of the partnership to appoint another active broker
26 within the 14-day period will result in cancellation of the partnership registration. The real
27 estate licenses of all partners and sales associates will automatically change to inactive
28 status.
29
30 Corporation
31
32 A real estate brokerage corporation must provide proof
33 of legal corporate existence prior to its initial registration
34 with the Department. The corporation and the names of all
35 officers and directors of the corporation must be registered
36 with the Department to perform real estate services for
37 others. At least one corporate officer must have an active
38 real estate broker’s license. [F.S. 475.15 and F.A.C. 61J2-5.012 and 61J2-5.014]
39 In the event that a corporation has only one active broker, and the broker dies, resigns,
40 or is otherwise removed from the position, the vacancy must be filled within 14 calendar
41 days. During this time period, the corporation may not acquire any new brokerage business
42 but may conclude existing business. No new brokerage business may be acquired until a
43 new active broker is appointed and registered.
44 Failure of the corporation to appoint another active broker within the 14-day period will
45 result in cancellation of the corporate registration. Additionally, the real estate licenses of
46 corporate officers, directors, and sales associates will automatically be placed in an
47 involuntarily inactive status.
48 However, if the corporation has more than one active registered broker, neither the
49 corporate registration nor the real estate license of any corporate officer, director, or sales
50 associate will be affected by the vacancy. [F.A.C. 61J2-5.018]

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1 All corporate officers and directors, who provide real estate services to the public either
2 directly or indirectly, must hold an active real estate broker’s license. Brokers who have an
3 inactive license and unlicensed persons who serve as corporate officers or directors may
4 not perform real estate services but must be registered with the Department. A sales
5 associate or broker associate may not be an officer or director in a real estate brokerage
6 corporation. Anyone can be a stockholder whether they are licensed or not.
7 [F.S. 475.15 and F.A.C. 61J2-4.007, 61J2-5.015, and 61J2-5.016]
8
9 Franchise vs. Independent
10
11 • Franchise. A franchise is a business structure with a parent and franchised smaller
12 subsidiary operations. A franchise can offer considerable advantages for the new
13 broker, such as the established name recognition, proven business model, start-up
14 and ongoing support, and training.
15 In addition, a franchise also offers national advertising as well as local advertising
16 opportunities by combining your efforts with other franchise owners for collective
17 purchases. A franchise has the immediate effect of creating an established,
18 prosperous image for the new broker.
19 Of course, all of this comes with several fees. There is an up-front cost of
20 purchasing the franchise and the ongoing cost of franchise fees. Most franchise fees
21 are based on a percentage of sales.
22
23 • Independent. By opening an independent firm,
24 you save money in the beginning as compared to
25 opening a franchise where you have the cost of
26 purchasing the franchise or the ongoing franchise
27 fees. Of course, you give up all the advantages of
28 a franchise, however, the challenge of creating
29 your own brand from the ground up can be
30 extremely rewarding. It requires your vision, a
31 strong business plan, and a lot of sweat equity on
32 your part. Once you know your market and carve
33 out your niche, the potential is limitless.
34
35 THE BUSINESS MODEL
36
37 Over the past several years, various business models have emerged in real estate
38 brokerage operations. One of the biggest decisions you face as a new broker is what your
39 office business model will be. There are several options.
40
41 Traditional/Full-Service Model
42
43 With the traditional/full-service model, the broker provides substantial support services
44 for the associates in the office. Associates are typically hired at an entry-level commission
45 split of 50 to 60%. The commission is on a graduated scale and increases for the associate
46 as their production increases. The broker provides various support services to enhance and
47 support associate production.

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1 Services that a broker might provide in traditional/full-service model include:

2
3 • Desk/office
4 • Phone
5 • Fax
6 • Copy machine
7 • Internet access
8 • Advertising (newspapers,
9 magazines, etc.)
10 • Postcards (just listed, just sold)
11 • Postage for direct mail
12 • Sales training
13 • Property flyers
14 • Company or personal website
15 • Listing presentations and forms software
16 • In-house mortgage services
17 • Fulltime receptionist
18 • Referral services
19 • For sale signs
20
21 The traditional/full-service model has declined in recent years. With associates requiring
22 larger commission splits and the competition from other business models, the profit margins
23 for the broker have declined. Many brokers have been forced to reduce resources in return
24 for paying higher commission splits.
25
26 Reduced Service/Higher Commission Model
27
28 The reduced service/higher commission model has been gaining in popularity. As many
29 brokers have been forced to scale back the support they provide to their associates, they
30 have increased the commission splits. Brand new associates with little or no experience are
31 brought in at a 70 to 75% commission level with the ability to move higher with production.
32
33 The broker provides some services such as:
34
35 • Desk
36 • Phone
37 • Fax
38 • Copy machine
39 • Internet access
40 • Fulltime receptionist
41 • Consultations, when needed
42
43 The responsibilities of the associate include:
44
45 • All advertising (newspaper, magazine, etc.)
46 • Direct mail postage
47 • Property flyers
48 • Personal website
49 • Listing presentation and forms software

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1 With the reduced service/higher commission business model, some brokers might
2 charge a small monthly desk fee or marketing fee to the associate. This model tends to be a
3 compromise between the traditional/full-service model and the high commission/100%
4 commission model.
5
6 High or 100% Commission Model
7
8 The high or 100% commission model has gained in numbers and seems to be growing.
9 The broker pays an extremely high commission split to all associates, new and experienced.
10 Commissions to the associate are 95 to 100%. The broker usually charges a monthly desk
11 fee to the associate and a small fee for every closing, around $395 or so. The desk fee is
12 due and payable every month whether the associate closes a transaction or not. The broker
13 provides little or no support to the associate.
14 Under this model, the number of associates is the defining factor. The broker’s earnings
15 are generated through the monthly fees paid by the associate. Therefore, the more
16 associates, the more revenue for the broker. For the broker it is all about recruiting
17 associates rather than producing sales.
18
19 Broker Sells/No Associates Model
20
21 The broker sells/no associates model is
22 an option in which the broker makes the
23 business decision to run a one-man office
24 and not hire associates. In this model, the
25 broker usually maintains a home office or
26 virtual office with a postal address. Home
27 offices are legal in Florida, but the broker
28 must comply with all required office
29 requirements including a sign.
30
31 Virtual Office Website (VOW)
32
33 The virtual office website (VOW) model
34 is like a traditional office, except it operates exclusively online. The public visits the VOW
35 and registers by providing personal information. In doing so, the visitor becomes a
36 registered client of the broker. The client is now able to do property searches through the
37 MLS and access other information provided on the VOW.
38
39
To read the NAR policy on virtual office websites,
40
please visit the NAR website at
41
www.realtor.org.
42

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 Becoming a Broker or Manager 333

1 THE BUSINESS PLAN

2
3 In order to formulate a business plan, you should ask yourself these questions.
4
5
6 How
7 Where am I going
8 do I want to get there?
9 to go?
10
11
12
13
14
15
16 To ensure your success, a good business plan is necessary right from the beginning.
17 The first rule of an effective business plan is to put it in writing. It doesn’t have to consist of a
18 large number of pages and be so detailed as to discuss the color of the interior paint, but it
19 does need to cover all the important aspects for getting started. You can prepare a more
20 detailed, long-range plan after the business is up and running.
21 In this section, we will discuss the following important steps in formulating your business
22 plan:
23
24 • Define your role
25 • Define your market
26 • Plan your office space (facility)
27 • Determine start-up costs
28 • Prepare your operating budget
29 • Compose a policy and procedures manual
30 • Establish your brand
31
32 Define Your Role
33
34 It’s important to define the operating business model of your brokerage operation and
35 your role in it. Your business model will dictate the size and location of your office as well as
36 the staff required to run it.
37 Decide what your personal role, as broker, will be. Will you be a selling broker or focus
38 strictly on management, or perhaps both?
39 As a selling broker, there are two things to consider:
40
41 • You will be competing with your own associates, and this can create problems. It
42 may also be an issue in recruiting new associates to the office. From the associates’
43 point of view, it will not be considered a plus to be in competition with the broker. For
44 example, the associates may feel the broker is keeping all the good referrals and
45 cutting them out.
46
47 • As a selling broker, you will have less time for management duties and may require a
48 fulltime office manager.

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1 Define Your Market

2
3 Know your market area and demographics. Define your
4 niche. Don’t guess; do your homework. Things to consider
5 are:
6
7 • Volume of sales
8 • Average sale price
9 • Time on the market
10 • Age of the sellers
11 • Turnover rate/rate of sale
12 • Age of the buyers
13 • Where the buyers come from
14 • Competition
15
16 There are numerous sources where you can find this information, such as:
17
18
19
20 The MLS provides home sales statistics.
21
22
23
24 Florida REALTORS supplies buyer studies, seller
25 studies, and marketing studies.
26
27
28
29 National Association of REALTORS provides market
30 studies, seller/buyer marketing, and advertising
31
32
33
34 The United States Census Bureau provides information
35 on demographics, age, income, and profession.
36
37
38
39 PLAN YOUR OFFICE SPACE (FACILITY)
40
41 Making the move from your little office cubicle to an entire building or leased space is a
42 big leap. You need to give serious thought to exactly how much space you need, and the
43 cost involved. For most brokers, the single biggest expense is office space.
44 Things to consider when planning your space are listed on the following page.

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1 • Number of potential associates

2 • Location, visibility, and signage
3 • Parking
4 • Accessibility
5 • Required technology
6 • Phone system
7 • Conference room
8 • Lobby area
9 • Storage space
10 • Furniture
11
12 As we mentioned earlier, it is legal in Florida to operate a real estate brokerage office out
13 of your home, zoning permitting. The operation of the office cannot be in violation of any
14 local zoning laws or homeowner or condominium association rules and it must comply with
15 the Americans with Disabilities Act.
16 In addition, even if the office is in a private residence, it must still comply with all laws,
17 which govern a real estate office including signage and brokerage audits by the Division of
18 Real Estate (DRE).
19
20 Determine Start-Up Costs
21
22 You’ll need to consider a number of basic, start-up costs, such as the following:
23
24 • Legal (incorporating, licenses) • Rent
25 • Internet access (cable, DSL) • Equipment (computer, copier, fax
26 • Printing (stationery, business machine)
27 cards) • Office furnishings (lease or used)
28 • Brochures • Office supplies (paper, paperclips,
29 • Direct mail postage pens)
30 • Advertising • Signage
31 • For sale yard signs • Business software (word
32 • Insurance (E&O, liability) processing, accounting)
33 •
• Phone system Payroll
34 •
• Company website MLS fees
35
• Utilities (electric, water) • REALTOR association fees
36
37
38 Prepare Your Operating Budget
39
40 You’ll need to prepare an operating budget. To do this, determine how many associates
41 you will need to generate the income needed to pay business expenses, and project the
42 ongoing offices expenses, both fixed and variable.
43 Fixed expenses are those with a fixed (or same) amount paid each month. They include:
44
45 • Rental or mortgage payments
46 • Salaries
47 • Employer contributions for employees
48 • Equipment rental and maintenance contracts
49 • Furniture rentals
50 • Internet
51 • Insurance payments (Business risk/liability and property)

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1 Variable expenses are those with variable amounts or intermittent payments, including:
2
3 • Advertising
4 • Sales commissions
5 • MLS listing fees
6 • Utilities (telephone, electric)
7 • Office supplies
8 • Printing
9
10 Compose a Policy and Procedures Manual
11
12 The purpose of a Policy and Procedures Manual is to make sure that all members of
13 your brokerage company understand your philosophy and their roles and responsibilities as
14 employees in the business. Use great care to express the exact purpose of your brokerage
15 company to avoid misinterpretation. This manual provides a sense of direction for the
16 company and includes your firm’s mission statement.
17 Some of the items that should be covered in the manual include:
18
19 • A statement of the company’s mission
20 • A statement of the company’s objectives
21 • An organizational chart
22 • A clear, accurate presentation of the company’s position on agency representation
23 and who the company will and will not represent in a transaction
24 • A clear understanding of what type of properties the company will list or sell
25 (residential, mobile homes, vacant land, and commercial)
26 • A clear policy of whether or not the company will be involved in property
27 management
28 • A statement regarding the responsibilities and requirements of affiliated licensees
29 • Job descriptions for all employees, independent contractors, management, and office
30 staff
31 • Office procedures, including listing, rental, and closing procedures
32 • Employment procedures, including compensation plan, employment agreement, and
33 complaint and dismissal procedures
34 • Buyer representation procedure, if any
35
36 Note: It is important for this manual to have all the answers to every brokerage
37 procedure question.
38
39 Establish Your Brand
40
41 Stand out, establish your brand, and let brokers know what
42 makes you different and why they should work for you, not the
43 competition. Attracting the right real estate professionals to your
44 office will be a key part of your success.
45 Establish your brand with the public. You can accomplish this
46 through an aggressive institutional marketing campaign.
47
48 RECRUITING
49
50 One could say that recruiting is the lifeblood of a growing real estate brokerage. For a
51 real estate office to grow and prosper, it requires professional, producing associates. The
52 competition for new and experienced associates has always been intense and shows no

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1 signs of letting up. The simple fact is that agents come and go for a variety of reasons. This
2 creates an ongoing challenge for the broker both to keep the associates already employed
3 and to expand the roster by adding new ones.
4 Successful recruiting is not a hit-and-miss part time proposition. Successful recruiting
5 requires a dedicated, focused plan added to some sheer determination.
6 Note: Before you start your recruiting, you will need to decide whether you want your
7 affiliated licensees to be employees or independent contractors, or some combination of
8 each. In most firms these days, the associates are independent contractors.
9
10 • New licensees. An excellent place to start is by recruiting brand new licensees right
11 out of real estate school. New licensees are considerably easier to recruit; they have
12 positive attitudes, are eager to learn, and tend to listen. The down side is that new
13 licensees have a substantial learning curve. Inevitably, new associates will require a
14 lot of time, personal attention, training, and support for a while, and they won’t be
15 very productive. However, you can shorten this period with an aggressive, structured
16 training program.
17 A popular method of targeting new licensees is through the application process.
18 When anyone makes application to the state for a real estate license, it becomes
19 public record. It is possible to access this information through
20 www.MyFloridaLicense.com and reach out to those applicants before they even
21 acquire their license.
22
23 • Experienced licensees. Targeting the experienced, producing agent is not as easy
24 as the new agent. Experienced agents are established in their business and can be
25 resistant to change unless that change is to their benefit. The odds are good that you
26 already know who the producing agents are in your area. If not, they are easy to find
27 by searching MLS statistics for your market area to find top-producing agents.
28 In order to attract producing agents, you will need a strong value-added
29 proposition. You’ll need to explain why they should leave their present company and
30 transfer to you. You’ll need a good answer to the question of what you will offer to
31 support and grow their business. In many cases, it will have to entail more than just a
32 higher commission split.
33
34 The agents in your office can be extremely useful in any recruiting effort, so partner with
35 them. Your agents are in the field every day and have worked with agents from other offices.
36 They may know experienced agents that they feel would make a great addition to the office.
37 Think about offering a recruiting bonus to your present agents for every agent who joins
38 the offices that they recommended. The amount of the bonus should be based on the
39 production level of the recruited agent; the higher the production, the bigger the bonus.
40
41 TRAINING
42
43 For the broker, training is an important aspect of increasing associate production,
44 recruiting, and maintaining associate loyalty. The problem for the broker is that it can be
45 expensive and very time consuming. Another decision you must make is whether you will
46 charge the associates for training.
47 Training should be divided into two categories:
48
49 • Initial training. The training given to an agent when they join the company. A trainer
50 would include teaching the technology that the company uses, the rules of the broker
51 to perform the duties, and training for non-experienced agents to teach them how to
52 get started, farm, generate leads, fill contracts, etc.

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1 • On-going training. On-going training is delivered through weekly meetings. In these

2 meetings, the broker keeps the agent’s motivation high and keeps them current with
3 possible new rules and regulations from the DBPR/FREC/NAR and other legislative
4 institutions. Through these meetings, the broker will update their policy and
5 procedure manual and the associate will remain motivated and informed.
6
7 There are various levels or types of training to offer.
8
9 • Hands-on interactive training with a professional
10 trainer and structured curriculum
11 • Electronic training (videos and online programs)
12 • Mentoring program (on-the-job training)
13
14 The simple fact is that when the marketplace slows
15 down, training is one of the first things brokers cut to reduce expenses. The trend in the
16 industry has been away from training for most brokers. This is due to several reasons; cost
17 is only one. Many brokers know that if they invest time and money in training an associate,
18 that associate may leave to work for a broker offering a higher commission split. If the broker
19 decides to reduce costs by not paying a professional trainer and conducting the training
20 themselves, it is a huge draw on the broker’s time that causes other areas to suffer. More
21 and more brokers are looking to their local REALTOR associations and real estate schools
22 to fill the void.
23 To ensure success in this industry, all new associates need some basic fundamental
24 skills. Without these skills, their potential for success is severely limited. Necessary training
25 for the new associate consists of:
26
27 • Writing and understanding contracts
28 • Prospecting and farming for new business
29 • Building and presenting an effective listing presentation
30 • Advertising, marketing, and selling a listing
31 • Working with buyers
32
33 Writing and Understanding Contracts
34
35 A new associate must understand contracts, what they say, and the meaning of each
36 section. This includes a detailed look at how to fill out every blank of the contract with the
37 proper information and format, along with required disclosures.
38 Topics that should be included in contracts training are:
39
40 • Responsibility of preparation
41 • The forms program
42 • Considerations for completing
43 preprinted contracts
44 • How to fill out the contract
45 • Things to look for in the contract
46 • Timelines in the contract
47 • Required addendums
48 • Tips for successful contract negotiation
49 • Proper handling of the escrow deposit when writing the contract
50 • Escrow deposit FREC Rule F.A.C. 61J2.4008(2)(b)

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1 Prospecting and Farming for Listings

2
3 Associates need to learn different methods of prospecting for sellers. This training
4 should include building various prospecting data bases, selecting and building a farm area,
5 direct mail, writing advertising copy, the use of color in marketing and prospecting, and the
6 use of social media and its various aspects in prospecting.
7 Training topics should include:
8
9 • It’s your business • Push marketing
10 • Technology • Pull marketing
11 • Ways to develop a positive attitude • Prospecting tips and facts
12 • The three keys to prospecting • Social media to consider
13 success • Real estate blogging
14 • Sphere of influence including social • Marketing the property on the
15 media internet
16 • Expired listings • Seller and buyer facts to consider
17
• FSBOs • Basic prospecting tips
18
• Farm area • Color in prospecting and
19
20 • Past clients marketing
21 • Working with sellers • Things to start doing today
22 • Prospecting for sellers • To-do list everyday
23 • Five sources of listing prospects • To-do list weekly
24 • Prospecting concepts to consider • To-do list monthly
25
26 Building and Presenting an Effective Listing Presentation
27
28 Associates need to become expert in every aspect of the listing presentation. This
29 includes building the presentation, section by section. Associates should know what a
30 presentation includes and learn unique ideas to personalize it. They need to understand the
31 actual listing presentation as it takes place from the time they arrive at the home until they
32 leave.
33 Topics for this type of training should include:
34
35 • Your REALTOR Association and the MLS
36 • Building the listing presentation, including:
37 o The cover letter
38 o Professional resume
39 o Professional affiliations
40 o Company profile
41 o Marketing plan
42 o Tips for preparing a home for sale
43 o Tips for staging the home for showing
44 o The CMA
45 • Things to bring to the listing presentation
46 • Four personality types
47 • Know your seller and buyer by generation
48 • Conducting the listing presentation
49 • Dressing appropriately
50 • Things to tell the seller at the time of listing
51 • Things to ask the seller for at the time of listing
52 • Handling seller objections
53 • Communication skills

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1 • Exclusive Right of Sale Listing Agreement

2 • The Forms Program
3 • The listing file
4
5 Advertising, Marketing, and Selling a Listing
6
7 Associates need to learn the details of working with sellers and servicing the listing, with
8 substantial emphasis on marketing concepts, communicating with the seller, required
9 technology, and marketing to real estate professionals.
10 Topics for this training should include:
11
12 • Working with sellers • Writing good advertising and MLS
13 • Technology copy
14 • Servicing the listing • Basic rules for advertising copy
15 • Communication • Using color in marketing
16 • Lockboxes • Marketing concepts
17 • Signs • Marketing tips and facts
18 • Effective marketing • Marketing the property on the
19
• Marketing to other real estate Internet
20 • Internet facts to consider in
professionals
21
• Marketing to buyers Florida
22
23
24 Working with Buyers
25
26 Associates need detailed information on all aspects of
27 working with buyers.
28
29 Topics for this training should include:
30
31 • Working with buyers • Financing
32 • Sources of buyer prospects • Showing property
33 • Qualifying the buyer • The pending file
34 • Interviewing the buyer • Property inspections
35 • Protecting your interest with buyers • Title work
36 • Showing agreements
37
38 Ongoing Training
39
40 The education never stops for the true professional. Even if you are in the real estate
41 business for fifty years, the need to continue your real estate education is critical to long
42 term success. The constant quest to improve your presentation, prospecting,
43 communication, and marketing skills and the need to stay abreast of changes in technology
44 and the license law will allow you to grow your business and achieve your business goals
45 over the long term.
46 In the beginning, it is critical to learn as much as you can about the industry. There is a
47 direct correlation between training and the success of your business, but it is only the
48 beginning. Take advantage of workshops, courses, and seminars as often as possible for
49 you and your associates. Education and training are the keys to success in the real estate
50 industry.

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1 BECOMING AN OFFICE MANAGER

2
3 Have you ever thought about moving into the management end of the business? Now
4 that you have established yourself in sales, perhaps you are ready for a new challenge.
5 Many successful agents consider management as a way of expanding their career and
6 accepting new challenges and responsibility.
7 Brokers are constantly under pressure as demands are placed on their time from all
8 directions. Associates, clients, other brokers, association duties and so on, all require their
9 attention. The solution is usually to hire an office manager or someone who is often referred
10 to as a manager broker.
11 The office manager handles the day-to-day operations of the office and takes on a
12 leadership role in the brokerage. In most cases, the office manager can also sell. They
13 receive a base salary and a generous commission split on all of their sales and may receive
14 a bonus for recruitment of new associates to the office.
15 One big mistake brokers and agents make when hiring an office manager is assuming
16 that because someone was a top selling agent, they will make a good office manager; this
17 simply isn’t true. Being a top selling agent is not an indicator of leadership skills. Sure, a
18 good office manager has to know the technical side of the business, but they must embrace
19 substantial leadership and management skills as well. A good office manager must possess
20 substantial industry knowledge and an acute understanding of the business, as well as be a
21 true team player. Nothing less will suffice.
22 True leaders appear to exhibit several common traits. However, just having the traits is
23 not enough. A good leader must be able to utilize these traits in the day-to-day management
24 tasks.
25 The leadership traits required for a good office manager include:
26
27 • Honesty and integrity. Honesty and integrity are the first and maybe the most
28 important leadership traits of a good office manager. With a multitude of scandals in
29 the business and political communities today, associates are likely to be skeptical of
30 an office manager especially in the beginning. If you want people to believe in you
31 and follow you, they have to know you are honest and fair and see that you practice
32 what you say and treat everyone equally.
33
34 • Dedication. Dedication to doing what it takes to get the job done is critical.
35 Associates must know the manager is willing to put in the time necessary to
36 accomplish the goals of the office. Selling real estate is not a 9 to 5 job; neither is
37 management.
38
39 • Availability. Successful office managers are available to the associates. The
40 associates in the office must know that when a question arises or they are in need of
41 guidance, the manger will be there.
42
43 • Vision. The office manager must be able to see and embrace the vision of the
44 broker. Not only does the office manager have to see and understand the future
45 goals of the office, but also, they must be able to convey those goals to the office
46 associates in an effective way.
47
48 • Creativity. A good manager must be creative and able to think outside of the box.
49 Being able to see different solutions to seemingly difficult problems is a strong
50 management trait.

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1 • Sense of humor. A good sense of

2 humor can go a long way in creating a “A sense of humor is part of
3 productive work environment in the
the art of leadership, of
4 office. Real estate can be a stressful
5 business and associates are often under getting along with people, of
6 pressure. Humor can relieve the tension getting things done.”
7 and motivate the office.
8 - Dwight D. Eisenhower
9
10
11 Just as there are specific qualities and traits that you want a good office manager have,
12 there are those that you don’t want an office manager to have.
13 These include the following:
14
15 • Micromanaging, needing to be in control of every detail
16 • Not taking responsibility or passing the buck
17 • Reprimanding associates publicly
18 • Not establishing expectations
19 • Procrastinating in excess
20 • Withholding performance feedback
21 • Not holding others accountable for their performance
22
23 Whether you become a manager or hire one, it’s good to remember that role will be
24 instrumental in the success of your business.
25
26 BUILDING YOUR FUTURE
27
28 There are certainly no guarantees, but the challenge of opening your own office can be
29 an exhilarating experience. It is an exciting time in the marketplace today with new and
30 unexpected opportunities for the broker who is willing to take aggressive and effective
31 action. Not only do we have a booming population with which to work, but also people from
32 all over the world come to Florida to buy and sell real estate. This will still be the case when
33 you become a broker. As the owner of your own office, you are in a desirable position to
34 benefit directly from this dynamic, fluid real estate market. Think about it. Everyone needs to
35 live somewhere, work somewhere, and shop somewhere. The potential for your success is
36 truly unlimited.

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CHAPTER 13 REVIEW QUESTIONS

1. With a , partners are and

liable for all debts and liabilities of the business. At least partner
must be licensed as an active broker. and may
not be partners.
2. A can offer considerable advantages for the new broker, such as name
recognition, proven business model, startup and ongoing support, training, and
advertising.
3. The biggest advantage to a new broker who decides to open an independent firm rather
than a franchise is the .
4. In the business model, the broker provides substantial
support services for the associates who are typically hired at an entry-level commission
split of to %.
5. The business model gained popularity as brokers
were forced to scale back the support for their associates in order to increase the
commission splits. With this model, brand new associates with little or no experience are
brought in at a to % commission level.
6. A is like a traditional office except it operates
exclusively online.
7. For most brokers starting a new business, the single biggest expense is .
8. When preparing your budget, you’ll need to project the ongoing offices expenses, both
and .
9. The purpose of a is to make sure all
members of your brokerage company understand your philosophy and their roles and
responsibilities as employees.
10. In most brokerage firms today, most of the associates are hired as .
11. The various types of training a broker can offer a new associates includes ,
, and .
12. Often when the marketplace slows down, is the first thing brokers
cut to reduce expenses.
13. One area of necessary training for a new associate is writing and understanding
.
14. The handles the day-to-day operations of the office and
takes on a leadership role in the brokerage.
15. The important leadership traits of a good office manager are and
, , , , , and a
.

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CHAPTER 13 PRACTICE EXAM

1. Which skill is the LEAST important in 6. What is the main purpose of a

the selection of a good brokerage business brokerage?
office manager? a. To specialize in selling industrial
a. Acute understanding of the technical properties
aspects and procedures of the b. To specialize in selling or leasing
business income-producing properties
b. Substantial real estate industry c. To specialize in helping small
knowledge business owners in the buying and
c. Strong management and leadership selling process
skills d. To manage residential, commercial,
d. Long history as a top-selling broker or industrial properties

2. Which type of business organization 7. A broker decides to be a selling

has a parent-subsidiary structure with broker instead of focusing strictly on
an ongoing outlay of money to the managing the business. Which of the
parent organization based on a following is LEAST likely to occur?
percentage of sale fees? a. It is difficult to recruit new associates.
a. Franchise b. A full time office manager is required.
b. Sole Proprietor c. Associates are motivated by the
c. Corporation broker’s successful sales.
d. Partnership d. Associates consider themselves in
competition with the broker.
3. What type of brokerage specialty
deals with selling homes, 8. When preparing an operating budget,
condominiums, cooperatives, and which expense is considered a
other properties designed to be used variable expense?
as living space? a. MLS listing fees
a. Industrial b. Salaries
b. Residential brokerage c. Rent or mortgage payments
c. Commercial brokerage d. Insurance payments
d. Property management
9. Which item should NOT be included
4. Broker Fred has a home office and in a Policy and Procedures Manual?
has no licensed associates. Under a. Mission statement
which business model is Fred b. Budget statement
working? c. List of responsibilities for licensees
a. Reduced service/higher commission d. Office, listing, rental, and closing
b. Traditional/full-service procedures
c. High or 100% commission
d. Broker sells/no associates 10. What approach will MOST likely result
in successful recruitment of
5. What is the first rule of an effective experienced, top-performing
business plan? licensees?
a. Put it in writing a. Check the public records for new
b. Start with the little details you already applicants for a real estate license
know you want b. Explain how the licensee will benefit
c. Let your market define itself and grow more in your business than
d. Build your budget after you’ve been their current business
in business long enough to c. Offer additional training opportunities
understand your expenses d. Offer to match the current employer’s
commission split

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11. What type of broker specialty deals 14. Which of the following is NOT a
with selling or leasing income- positive trait of an office manager?
producing properties such as malls, a. Accountability
office parks, restaurants, gas b. Establishing expectations
stations, convenience stores, and c. Taking responsibility
office towers? d. Micromanaging
a. Property management
b. Industrial brokerage 15. What type of business is formed by
c. Commercial brokerage one independent registered broker
d. Residential brokerage who employs sales associates to
perform real estate transactions?
12. In what type of business model would a. Real estate brokerage partnership
an associate expect to receive a 95 to b. Sole proprietorship brokerage
100% commission plan? c. Real estate brokerage corporation
a. Base rate commission d. Franchised brokerage business
b. Traditional/full service
c. Split/progressive
d. High commission

13. What type of training should the

broker provide to instruct associates
on the procedures for lockboxes,
signage, and effective marketing?
a. Writing and understanding contracts
b. Prospecting and farming for listings
c. Advertising, marketing, and selling a
listing
d. Working with buyers

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 REAL ESTATE FORMS
TABLE OF CONTENTS

“As Is” Residential Contract for Sale ............................................... 349

Closing Disclosure ......................................................................... 361
Contract for Residential Sale and Purchase .................................... 366
Exclusive Buyer Brokerage Agreement ........................................... 375
Exclusive Right of Sale Listing Agreement ...................................... 379
Residential Contract for Sale and Purchase .................................... 383
Showing Agreement ........................................................................ 396

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 Real Estate Forms 349

“AS IS” Residential Contract For Sale And Purchase

THIS FORM HAS BEEN APPROVED BY THE FLORIDA REALTORS AND THE FLORIDA BAR

1 PARTIES: ("Seller"),
2 and ("Buyer"),
3 agree that Seller shall sell and Buyer shall buy the following described Real Property and Personal Property
4 (collectively “Property”) pursuant to the terms and conditions of this AS IS Residential Contract For Sale And Purchase
5 and any riders and addenda (“Contract”):
6 1. PROPERTY DESCRIPTION:
7 (a) Street address, city, zip:
8 (b) Located in: ______________ County, Florida. Property Tax ID #:
9 (c) Real Property: The legal description is
10
11
12 together with all existing improvements and fixtures, including built-in appliances, built-in furnishings and

E
13 attached wall-to-wall carpeting and flooring (“Real Property”) unless specifically excluded in Paragraph 1(e) or
14 by other terms of this Contract.
15 (d) Personal Property: Unless excluded in Paragraph 1(e) or by other terms of this Contract, the following items
16 which are owned by Seller and existing on the Property as of the date of the initial offer are included in the
17 purchase: range(s)/oven(s), refrigerator(s), dishwasher(s), disposal, ceiling fan(s), light fixture(s), drapery rods
18 and draperies, blinds, window treatments, smoke detector(s), garage door opener(s), thermostat(s), doorbell(s),
19
20
21
22
23
24
25

26

27
PL
television wall mount(s) and television mounting hardware, security gate and other access devices, mailbox
keys, and storm shutters/storm protection items and hardware ("Personal Property").
Other Personal Property items included in this purchase are:

Personal Property is included in the Purchase Price, has no contributory value, and shall be left for the Buyer.
(e) The following items are excluded from the purchase:

PURCHASE PRICE AND CLOSING

2. PURCHASE PRICE (U.S. currency):............................................................................................... $
M
28 (a) Initial deposit to be held in escrow in the amount of (checks subject to Collection) ............ $
29 The initial deposit made payable and delivered to “Escrow Agent” named below
30 (CHECK ONE): (i) accompanies offer or (ii) is to be made within _____ (if left blank,
31 then 3) days after Effective Date. IF NEITHER BOX IS CHECKED, THEN OPTION (ii)
32 SHALL BE DEEMED SELECTED.
33 Escrow Agent Name: _______________________________________________________
34 Address: Phone: ___________________
SA

35 Email: _________________________________________ Fax:______________________

36 (b) Additional deposit to be delivered to Escrow Agent within __________ (if left blank, then 10)
37 days after Effective Date ........................................................................................................... $_____________
38 (All deposits paid or agreed to be paid, are collectively referred to as the “Deposit”)
39 (c) Financing: Express as a dollar amount or percentage (“Loan Amount”) see Paragraph 8 ......... _____________
40 (d) Other: ................ $_____________
41 (e) Balance to close (not including Buyer’s closing costs, prepaids and prorations) by wire
42 transfer or other Collected funds (See STANDARD S) ............................................................. $_____________
43 3. TIME FOR ACCEPTANCE OF OFFER AND COUNTER-OFFERS; EFFECTIVE DATE:
44 (a) If not signed by Buyer and Seller, and an executed copy delivered to all parties on or before
45 _______________________, this offer shall be deemed withdrawn and the Deposit, if any, shall be returned to
46 Buyer. Unless otherwise stated, time for acceptance of any counter-offers shall be within 2 days after the day
47 the counter-offer is delivered.
48 (b) The effective date of this Contract shall be the date when the last one of the Buyer and Seller has signed or
49 initialed and delivered this offer or final counter-offer (“Effective Date”).
50 4. CLOSING; CLOSING DATE: The closing of this transaction shall occur when all funds required for closing are
51 received by Closing Agent and Collected pursuant to STANDARD S and all closing documents required to be
52 furnished by each party pursuant to this Contract are delivered (“Closing”). Unless modified by other provisions of

Buyer’s Initials _________ __________ Page 1 of 12 Seller’s Initials __________ __________

FloridaRealtors/FloridaBar-ASIS-6 Rev.10/21 © 2021 Florida Realtors® and The Florida Bar. All rights reserved.

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53 this Contract, the Closing shall occur on _____________________________ (“Closing Date”), at the time
54 established by the Closing Agent.
55 5. EXTENSION OF CLOSING DATE:
56 (a) In the event Closing funds from Buyer’s lender(s) are not available on Closing Date due to Consumer Financial
57 Protection Bureau Closing Disclosure delivery requirements (“CFPB Requirements”), if Paragraph 8(b) is
58 checked, Loan Approval has been obtained, and lender’s underwriting is complete, then Closing Date shall be
59 extended for such period necessary to satisfy CFPB Requirements, provided such period shall not exceed 7
60 days.
61 (b) If an event constituting “Force Majeure” causes services essential for Closing to be unavailable, including the
62 unavailability of utilities or issuance of hazard, wind, flood or homeowners’ insurance, Closing Date shall be
63 extended as provided in STANDARD G.
64 6. OCCUPANCY AND POSSESSION:
65 (a) Unless Paragraph 6(b) is checked, Seller shall, at Closing, deliver occupancy and possession of the Property
66 to Buyer free of tenants, occupants and future tenancies. Also, at Closing, Seller shall have removed all
67 personal items and trash from the Property and shall deliver all keys, garage door openers, access devices and
codes, as applicable, to Buyer. If occupancy is to be delivered before Closing, Buyer assumes all risks of loss

E
68
69 to the Property from date of occupancy, shall be responsible and liable for maintenance from that date, and
70 shall have accepted the Property in its existing condition as of time of taking occupancy, see Rider T PRE-
71 CLOSING OCCUPANCY BY BUYER.
72 (b) CHECK IF PROPERTY IS SUBJECT TO LEASE(S) OR OCCUPANCY AFTER CLOSING. If Property is
73 subject to a lease(s) or any occupancy agreements (including seasonal and short-term vacation rentals) after
74
75
76
77
78
79
80
81
82
83
PL
Closing or is intended to be rented or occupied by third parties beyond Closing, the facts and terms thereof
shall be disclosed in writing by Seller to Buyer and copies of the written lease(s) shall be delivered to Buyer, all
within 5 days after Effective Date. If Buyer determines, in Buyer’s sole discretion, that the lease(s) or terms of
occupancy are not acceptable to Buyer, Buyer may terminate this Contract by delivery of written notice of such
election to Seller within 5 days after receipt of the above items from Seller, and Buyer shall be refunded the
Deposit thereby releasing Buyer and Seller from all further obligations under this Contract. Estoppel Letter(s)
and Seller’s affidavit shall be provided pursuant to STANDARD D, except that tenant Estoppel Letters shall not
be required on seasonal or short-term vacation rentals. If Property is intended to be occupied by Seller after
Closing, see Rider U POST-CLOSING OCCUPANCY BY SELLER.
7. ASSIGNABILITY: (CHECK ONE): Buyer may assign and thereby be released from any further liability under
84 this Contract; may assign but not be released from liability under this Contract; or may not assign this Contract.
M
85 IF NO BOX IS CHECKED, THEN BUYER MAY NOT ASSIGN THIS CONTRACT.
86 FINANCING
87 8. FINANCING:
88 (a) This is a cash transaction with no financing contingency.
89 (b) This Contract is contingent upon, within _______ (if left blank, then 30) days after Effective Date (“Loan
90 Approval Period”): (1) Buyer obtaining approval of a conventional FHA VA or other ______________
SA

91 (describe) mortgage loan for purchase of the Property for a (CHECK ONE): fixed, adjustable, fixed or
92 adjustable rate in the Loan Amount (See Paragraph 2(c)), at an initial interest rate not to exceed _______ % (if left
93 blank, then prevailing rate based upon Buyer’s creditworthiness), and for a term of _______(if left blank, then 30)
94 years (“Financing”); and (2) Buyer’s mortgage broker or lender having received an appraisal or alternative valuation
95 of the Property satisfactory to lender, if either is required by lender, which is sufficient to meet the terms required
96 for lender to provide Financing for Buyer and proceed to Closing (“Appraisal”).
97 (i) Buyer shall make application for Financing within _______ (if left blank, then 5) days after Effective Date
98 and use good faith and diligent effort to obtain approval of a loan meeting the Financing and Appraisal terms of
99 Paragraph 8(b)(1) and (2), above, (“Loan Approval”) within the Loan Approval Period and, thereafter, to close this
100 Contract. Loan Approval which requires Buyer to sell other real property shall not be considered Loan Approval
101 unless Rider V is attached.
102 Buyer’s failure to use good faith and diligent effort to obtain Loan Approval during the Loan Approval Period shall
103 be considered a default under the terms of this Contract. For purposes of this provision, “diligent effort” includes,
104 but is not limited to, timely furnishing all documents and information required by Buyer’s mortgage broker and lender
105 and paying for Appraisal and other fees and charges in connection with Buyer’s application for Financing.
106 (ii) Buyer shall, upon written request, keep Seller and Broker fully informed about the status of Buyer’s
107 mortgage loan application, loan processing, appraisal, and Loan Approval, including any Property related conditions
108 of Loan Approval. Buyer authorizes Buyer’s mortgage broker, lender, and Closing Agent to disclose such status

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109 and progress and release preliminary and finally executed closing disclosures and settlement statements, as
110 appropriate and allowed, to Seller and Broker.
111 (iii) If within the Loan Approval Period, Buyer obtains Loan Approval, Buyer shall notify Seller of same in writing
112 prior to expiration of the Loan Approval Period; or, if Buyer is unable to obtain Loan Approval within Loan Approval
113 Period but Buyer is satisfied with Buyer’s ability to obtain Loan Approval and proceed to Closing, Buyer shall deliver
114 written notice to Seller confirming same, prior to the expiration of the Loan Approval Period.
115 (iv) If Buyer is unable to obtain Loan Approval within the Loan Approval Period, or cannot timely meet the
116 terms of Loan Approval, all after the exercise of good faith and diligent effort, Buyer may terminate this Contract by
117 delivering written notice of termination to Seller prior to expiration of the Loan Approval Period; whereupon, provided
118 Buyer is not in default under the terms of this Contract, Buyer shall be refunded the Deposit thereby releasing Buyer
119 and Seller from all further obligations under this Contract.
120 (v) If Buyer fails to timely deliver any written notice provided for in Paragraph 8(b)(iii) or (iv), above, to Seller
121 prior to expiration of the Loan Approval Period, then Buyer shall proceed forward with this Contract as though
122 Paragraph 8(a), above, had been checked as of the Effective Date; provided, however, Seller may elect to terminate
123 this Contract by delivering written notice of termination to Buyer within 3 days after expiration of the Loan Approval
Period and, provided Buyer is not in default under the terms of this Contract, Buyer shall be refunded the Deposit

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125 thereby releasing Buyer and Seller from all further obligations under this Contract.
126 (vi) If Buyer has timely provided either written notice provided for in Paragraph 8b(iii), above, and Buyer
127 thereafter fails to close this Contract, the Deposit shall be paid to Seller unless failure to close is due to: (1) Seller’s
128 default or inability to satisfy other contingencies of this Contract; or (2) Property related conditions of the Loan
129 Approval (specifically excluding the Appraisal valuation) have not been met unless such conditions are waived by
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other provisions of this Contract; in which event(s) the Buyer shall be refunded the Deposit, thereby releasing Buyer
and Seller from all further obligations under this Contract.
(c) Assumption of existing mortgage (see Rider D for terms).
(d) Purchase money note and mortgage to Seller (see Rider C for terms).
CLOSING COSTS, FEES AND CHARGES
9. CLOSING COSTS; TITLE INSURANCE; SURVEY; HOME WARRANTY; SPECIAL ASSESSMENTS:
(a) COSTS TO BE PAID BY SELLER:
• Documentary stamp taxes and surtax on deed, if any • HOA/Condominium Association estoppel fees
• Owner’s Policy and Charges (if Paragraph 9(c)(i) is checked) • Recording and other fees needed to cure title
139 • Title search charges (if Paragraph 9(c)(iii) is checked) • Seller’s attorneys’ fees
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140 • Municipal lien search (if Paragraph 9(c)(i) or (iii) is checked) • Other:
141 • Charges for FIRPTA withholding and reporting
142 If, prior to Closing, Seller is unable to meet the AS IS Maintenance Requirement as required by Paragraph 11,
143 a sum equal to 125% of estimated costs to meet the AS IS Maintenance Requirement shall be escrowed at
144 Closing. If actual costs to meet the AS IS Maintenance Requirement exceed escrowed amount, Seller shall pay
145 such actual costs. Any unused portion of escrowed amount(s) shall be returned to Seller.
146 (b) COSTS TO BE PAID BY BUYER:
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147 • Taxes and recording fees on notes and mortgages • Loan expenses
148 • Recording fees for deed and financing statements • Appraisal fees
149 • Owner’s Policy and Charges (if Paragraph 9(c)(ii) is checked) • Buyer’s Inspections
150 • Survey (and elevation certification, if required) • Buyer’s attorneys’ fees
151 • Lender’s title policy and endorsements • All property related insurance
152 • HOA/Condominium Association application/transfer fees • Owner’s Policy Premium (if Paragraph
153 • Municipal lien search (if Paragraph 9(c)(ii) is checked) 9(c)(iii) is checked)
154 • Other:
155 (c) TITLE EVIDENCE AND INSURANCE: At least ______ (if left blank, then 15, or if Paragraph 8(a) is checked,
156 then 5) days prior to Closing Date (“Title Evidence Deadline”), a title insurance commitment issued by a Florida
157 licensed title insurer, with legible copies of instruments listed as exceptions attached thereto (“Title
158 Commitment”) and, after Closing, an owner’s policy of title insurance (see STANDARD A for terms) shall be
159 obtained and delivered to Buyer. If Seller has an owner’s policy of title insurance covering the Real Property,
160 Seller shall furnish a copy to Buyer and Closing Agent within 5 days after Effective Date. The owner’s title policy
161 premium, title search and closing services (collectively, “Owner’s Policy and Charges”) shall be paid, as set
162 forth below. The title insurance premium charges for the owner’s policy and any lender’s policy will be calculated
163 and allocated in accordance with Florida law, but may be reported differently on certain federally mandated
164 closing disclosures and other closing documents. For purposes of this Contract “municipal lien search” means a

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165 search of records necessary for the owner’s policy of title insurance to be issued without exception for unrecorded
166 liens imposed pursuant to Chapters 153, 159 or 170, F.S., in favor of any governmental body, authority or agency.
167 (CHECK ONE):
168 (i) Seller shall designate Closing Agent and pay for Owner’s Policy and Charges, and Buyer shall pay the
169 premium for Buyer’s lender’s policy and charges for closing services related to the lender’s policy,
170 endorsements and loan closing, which amounts shall be paid by Buyer to Closing Agent or such other
171 provider(s) as Buyer may select; or
172 (ii) Buyer shall designate Closing Agent and pay for Owner’s Policy and Charges and charges for closing
173 services related to Buyer’s lender’s policy, endorsements and loan closing; or
174 (iii) [MIAMI-DADE/BROWARD REGIONAL PROVISION]: Buyer shall designate Closing Agent. Seller shall
175 furnish a copy of a prior owner’s policy of title insurance or other evidence of title and pay fees for: (A) a
176 continuation or update of such title evidence, which is acceptable to Buyer’s title insurance underwriter for
177 reissue of coverage; (B) tax search; and (C) municipal lien search. Buyer shall obtain and pay for post-Closing
178 continuation and premium for Buyer’s owner’s policy, and if applicable, Buyer’s lender’s policy. Seller shall not
179 be obligated to pay more than $_____________ (if left blank, then $200.00) for abstract continuation or title
search ordered or performed by Closing Agent.

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181 (d) SURVEY: At least 5 days prior to Closing Date, Buyer may, at Buyer’s expense, have the Real Property
182 surveyed and certified by a registered Florida surveyor (“Survey”). If Seller has a survey covering the Real
183 Property, a copy shall be furnished to Buyer and Closing Agent within 5 days after Effective Date.
184 (e) HOME WARRANTY: At Closing, Buyer Seller N/A shall pay for a home warranty plan issued by
185 ___________________________________________ at a cost not to exceed $_________________. A home
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warranty plan provides for repair or replacement of many of a home’s mechanical systems and major built-in
appliances in the event of breakdown due to normal wear and tear during the agreement’s warranty period.
(f) SPECIAL ASSESSMENTS: At Closing, Seller shall pay: (i) the full amount of liens imposed by a public body
(“public body” does not include a Condominium or Homeowner’s Association) that are certified, confirmed and
ratified before Closing; and (ii) the amount of the public body’s most recent estimate or assessment for an
improvement which is substantially complete as of Effective Date, but that has not resulted in a lien being
imposed on the Property before Closing. Buyer shall pay all other assessments. If special assessments may
be paid in installments (CHECK ONE):
(a) Seller shall pay installments due prior to Closing and Buyer shall pay installments due after Closing.
Installments prepaid or due for the year of Closing shall be prorated.
196 (b) Seller shall pay, in full, prior to or at the time of Closing, any assessment(s) allowed by the public body
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197 to be prepaid. For any assessment(s) which the public body does not allow prepayment, OPTION (a) shall be
198 deemed selected for such assessment(s).
199 IF NEITHER BOX IS CHECKED, THEN OPTION (a) SHALL BE DEEMED SELECTED.
200 This Paragraph 9(f) shall not apply to a special benefit tax lien imposed by a community development district
201 (CDD) pursuant to Chapter 190, F.S., or special assessment(s) imposed by a special district pursuant to
202 Chapter 189, F.S., which lien(s) or assessment(s) shall be prorated pursuant to STANDARD K.
203 DISCLOSURES
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204 10. DISCLOSURES:

205 (a) RADON GAS: Radon is a naturally occurring radioactive gas that, when it is accumulated in a building in
206 sufficient quantities, may present health risks to persons who are exposed to it over time. Levels of radon that
207 exceed federal and state guidelines have been found in buildings in Florida. Additional information regarding
208 radon and radon testing may be obtained from your county health department.
209 (b) PERMITS DISCLOSURE: Except as may have been disclosed by Seller to Buyer in a written disclosure, Seller
210 does not know of any improvements made to the Property which were made without required permits or made
211 pursuant to permits which have not been properly closed or otherwise disposed of pursuant to Section 553.79,
212 F.S. If Seller identifies permits which have not been closed or improvements which were not permitted, then
213 Seller shall promptly deliver to Buyer all plans, written documentation or other information in Seller’s possession,
214 knowledge, or control relating to improvements to the Property which are the subject of such open permits or
215 unpermitted improvements.
216 (c) MOLD: Mold is naturally occurring and may cause health risks or damage to property. If Buyer is concerned or
217 desires additional information regarding mold, Buyer should contact an appropriate professional.
218 (d) FLOOD ZONE; ELEVATION CERTIFICATION: Buyer is advised to verify by elevation certificate which flood
219 zone the Property is in, whether flood insurance is required by Buyer’s lender, and what restrictions apply to
220 improving the Property and rebuilding in the event of casualty. If Property is in a “Special Flood Hazard Area”

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221 or “Coastal Barrier Resources Act” designated area or otherwise protected area identified by the U.S. Fish and
222 Wildlife Service under the Coastal Barrier Resources Act and the lowest floor elevation for the building(s) and/or
223 flood insurance rating purposes is below minimum flood elevation or is ineligible for flood insurance coverage
224 through the National Flood Insurance Program or private flood insurance as defined in 42 U.S.C. §4012a, Buyer
225 may terminate this Contract by delivering written notice to Seller within _____ (if left blank, then 20) days after
226 Effective Date, and Buyer shall be refunded the Deposit thereby releasing Buyer and Seller from all further
227 obligations under this Contract, failing which Buyer accepts existing elevation of buildings and flood zone
228 designation of Property.
229 (e) ENERGY BROCHURE: Buyer acknowledges receipt of Florida Energy-Efficiency Rating Information Brochure
230 required by Section 553.996, F.S.
231 (f) LEAD-BASED PAINT: If Property includes pre-1978 residential housing, a lead-based paint disclosure is
232 mandatory.
233 (g) HOMEOWNERS’ ASSOCIATION/COMMUNITY DISCLOSURE: BUYER SHOULD NOT EXECUTE THIS
234 CONTRACT UNTIL BUYER HAS RECEIVED AND READ THE HOMEOWNERS’
235 ASSOCIATION/COMMUNITY DISCLOSURE, IF APPLICABLE.
(h) PROPERTY TAX DISCLOSURE SUMMARY: BUYER SHOULD NOT RELY ON THE SELLER’S CURRENT

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237 PROPERTY TAXES AS THE AMOUNT OF PROPERTY TAXES THAT THE BUYER MAY BE OBLIGATED TO
238 PAY IN THE YEAR SUBSEQUENT TO PURCHASE. A CHANGE OF OWNERSHIP OR PROPERTY
239 IMPROVEMENTS TRIGGERS REASSESSMENTS OF THE PROPERTY THAT COULD RESULT IN HIGHER
240 PROPERTY TAXES. IF YOU HAVE ANY QUESTIONS CONCERNING VALUATION, CONTACT THE
241 COUNTY PROPERTY APPRAISER’S OFFICE FOR INFORMATION.
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(i)

(j)
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FOREIGN INVESTMENT IN REAL PROPERTY TAX ACT (“FIRPTA”): Seller shall inform Buyer in writing if
Seller is a “foreign person” as defined by the Foreign Investment in Real Property Tax Act (“FIRPTA”). Buyer
and Seller shall comply with FIRPTA, which may require Seller to provide additional cash at Closing. If Seller
is not a “foreign person”, Seller can provide Buyer, at or prior to Closing, a certification of non-foreign status,
under penalties of perjury, to inform Buyer and Closing Agent that no withholding is required. See STANDARD
V for further information pertaining to FIRPTA. Buyer and Seller are advised to seek legal counsel and tax
advice regarding their respective rights, obligations, reporting and withholding requirements pursuant to
FIRPTA.
SELLER DISCLOSURE: Seller knows of no facts materially affecting the value of the Real Property which are
not readily observable and which have not been disclosed to Buyer. Except as provided for in the preceding
252 sentence, Seller extends and intends no warranty and makes no representation of any type, either express or
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253 implied, as to the physical condition or history of the Property. Except as otherwise disclosed in writing Seller
254 has received no written or verbal notice from any governmental entity or agency as to a currently uncorrected
255 building, environmental or safety code violation.
256 PROPERTY MAINTENANCE, CONDITION, INSPECTIONS AND EXAMINATIONS
257 11. PROPERTY MAINTENANCE: Except for ordinary wear and tear and Casualty Loss, Seller shall maintain the
258 Property, including, but not limited to, lawn, shrubbery, and pool, in the condition existing as of Effective Date (“AS
SA

259 IS Maintenance Requirement”). See Paragraph 9(a) for escrow procedures, if applicable.

260 12. PROPERTY INSPECTION; RIGHT TO CANCEL:

261 (a) PROPERTY INSPECTIONS AND RIGHT TO CANCEL: Buyer shall have ______ (if left blank, then 15)
262 days after Effective Date (“Inspection Period”) within which to have such inspections of the Property
263 performed as Buyer shall desire during the Inspection Period. If Buyer determines, in Buyer’s sole
264 discretion, that the Property is not acceptable to Buyer, Buyer may terminate this Contract by delivering
265 written notice of such election to Seller prior to expiration of Inspection Period. If Buyer timely
266 terminates this Contract, the Deposit paid shall be returned to Buyer, thereupon, Buyer and Seller shall
267 be released of all further obligations under this Contract; however, Buyer shall be responsible for
268 prompt payment for such inspections, for repair of damage to, and restoration of, the Property resulting
269 from such inspections, and shall provide Seller with paid receipts for all work done on the Property (the
270 preceding provision shall survive termination of this Contract). Unless Buyer exercises the right to
271 terminate granted herein, Buyer accepts the physical condition of the Property and any violation of
272 governmental, building, environmental, and safety codes, restrictions, or requirements, but subject to
273 Seller’s continuing AS IS Maintenance Requirement, and Buyer shall be responsible for any and all
274 repairs and improvements required by Buyer’s lender.

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275 (b) WALK-THROUGH INSPECTION/RE-INSPECTION: On the day prior to Closing Date, or on Closing Date prior
276 to time of Closing, as specified by Buyer, Buyer or Buyer’s representative may perform a walk-through (and
277 follow-up walk-through, if necessary) inspection of the Property solely to confirm that all items of Personal
278 Property are on the Property and to verify that Seller has maintained the Property as required by the AS IS
279 Maintenance Requirement and has met all other contractual obligations.
280 (c) SELLER ASSISTANCE AND COOPERATION IN CLOSE-OUT OF BUILDING PERMITS: If Buyer’s inspection
281 of the Property identifies open or needed building permits, then Seller shall promptly deliver to Buyer all plans,
282 written documentation or other information in Seller’s possession, knowledge, or control relating to
283 improvements to the Property which are the subject of such open or needed permits, and shall promptly
284 cooperate in good faith with Buyer’s efforts to obtain estimates of repairs or other work necessary to resolve
285 such permit issues. Seller’s obligation to cooperate shall include Seller’s execution of necessary authorizations,
286 consents, or other documents necessary for Buyer to conduct inspections and have estimates of such repairs
287 or work prepared, but in fulfilling such obligation, Seller shall not be required to expend, or become obligated to
288 expend, any money.
289 (d) ASSIGNMENT OF REPAIR AND TREATMENT CONTRACTS AND WARRANTIES: At Buyer’s option and
cost, Seller will, at Closing, assign all assignable repair, treatment and maintenance contracts and warranties

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291 to Buyer.
292 ESCROW AGENT AND BROKER
293 13. ESCROW AGENT: Any Closing Agent or Escrow Agent (collectively “Agent”) receiving the Deposit, other funds
294 and other items is authorized, and agrees by acceptance of them, to deposit them promptly, hold same in escrow
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within the State of Florida and, subject to Collection, disburse them in accordance with terms and conditions of this
Contract. Failure of funds to become Collected shall not excuse Buyer’s performance. When conflicting demands
for the Deposit are received, or Agent has a good faith doubt as to entitlement to the Deposit, Agent may take such
actions permitted by this Paragraph 13, as Agent deems advisable. If in doubt as to Agent’s duties or liabilities
under this Contract, Agent may, at Agent’s option, continue to hold the subject matter of the escrow until the parties
agree to its disbursement or until a final judgment of a court of competent jurisdiction shall determine the rights of
the parties, or Agent may deposit same with the clerk of the circuit court having jurisdiction of the dispute. An
attorney who represents a party and also acts as Agent may represent such party in such action. Upon notifying all
parties concerned of such action, all liability on the part of Agent shall fully terminate, except to the extent of
accounting for any items previously delivered out of escrow. If a licensed real estate broker, Agent will comply with
305 provisions of Chapter 475, F.S., as amended and FREC rules to timely resolve escrow disputes through mediation,
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306 arbitration, interpleader or an escrow disbursement order.
307 In any proceeding between Buyer and Seller wherein Agent is made a party because of acting as Agent hereunder,
308 or in any proceeding where Agent interpleads the subject matter of the escrow, Agent shall recover reasonable
309 attorney’s fees and costs incurred, to be paid pursuant to court order out of the escrowed funds or equivalent. Agent
310 shall not be liable to any party or person for mis-delivery of any escrowed items, unless such mis-delivery is due to
311 Agent’s willful breach of this Contract or Agent’s gross negligence. This Paragraph 13 shall survive Closing or
312 termination of this Contract.
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313 14. PROFESSIONAL ADVICE; BROKER LIABILITY: Broker advises Buyer and Seller to verify Property condition,
314 square footage, and all other facts and representations made pursuant to this Contract and to consult appropriate
315 professionals for legal, tax, environmental, and other specialized advice concerning matters affecting the Property
316 and the transaction contemplated by this Contract. Broker represents to Buyer that Broker does not reside on the
317 Property and that all representations (oral, written or otherwise) by Broker are based on Seller representations or
318 public records. BUYER AGREES TO RELY SOLELY ON SELLER, PROFESSIONAL INSPECTORS AND
319 GOVERNMENTAL AGENCIES FOR VERIFICATION OF PROPERTY CONDITION, SQUARE FOOTAGE AND
320 FACTS THAT MATERIALLY AFFECT PROPERTY VALUE AND NOT ON THE REPRESENTATIONS (ORAL,
321 WRITTEN OR OTHERWISE) OF BROKER. Buyer and Seller (individually, the “Indemnifying Party”) each
322 individually indemnifies, holds harmless, and releases Broker and Broker’s officers, directors, agents and
323 employees from all liability for loss or damage, including all costs and expenses, and reasonable attorney’s fees at
324 all levels, suffered or incurred by Broker and Broker’s officers, directors, agents and employees in connection with
325 or arising from claims, demands or causes of action instituted by Buyer or Seller based on: (i) inaccuracy of
326 information provided by the Indemnifying Party or from public records; (ii) Indemnifying Party’s misstatement(s) or
327 failure to perform contractual obligations; (iii) Broker’s performance, at Indemnifying Party’s request, of any task
328 beyond the scope of services regulated by Chapter 475, F.S., as amended, including Broker’s referral,
329 recommendation or retention of any vendor for, or on behalf of, Indemnifying Party; (iv) products or services
330 provided by any such vendor for, or on behalf of, Indemnifying Party; and (v) expenses incurred by any such vendor.

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331 Buyer and Seller each assumes full responsibility for selecting and compensating their respective vendors and
332 paying their other costs under this Contract whether or not this transaction closes. This Paragraph 14 will not relieve
333 Broker of statutory obligations under Chapter 475, F.S., as amended. For purposes of this Paragraph 14, Broker
334 will be treated as a party to this Contract. This Paragraph 14 shall survive Closing or termination of this Contract.
335 DEFAULT AND DISPUTE RESOLUTION
336 15. DEFAULT:
337 (a) BUYER DEFAULT: If Buyer fails, neglects or refuses to perform Buyer’s obligations under this Contract,
338 including payment of the Deposit, within the time(s) specified, Seller may elect to recover and retain the Deposit
339 for the account of Seller as agreed upon liquidated damages, consideration for execution of this Contract, and
340 in full settlement of any claims, whereupon Buyer and Seller shall be relieved from all further obligations under
341 this Contract, or Seller, at Seller’s option, may, pursuant to Paragraph 16, proceed in equity to enforce Seller’s
342 rights under this Contract. The portion of the Deposit, if any, paid to Listing Broker upon default by Buyer, shall
343 be split equally between Listing Broker and Cooperating Broker; provided however, Cooperating Broker’s share
344 shall not be greater than the commission amount Listing Broker had agreed to pay to Cooperating Broker.
(b) SELLER DEFAULT: If for any reason other than failure of Seller to make Seller’s title marketable after

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346 reasonable diligent effort, Seller fails, neglects or refuses to perform Seller’s obligations under this Contract,
347 Buyer may elect to receive return of Buyer’s Deposit without thereby waiving any action for damages resulting
348 from Seller’s breach, and, pursuant to Paragraph 16, may seek to recover such damages or seek specific
349 performance.
350 This Paragraph 15 shall survive Closing or termination of this Contract.
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as follows:

16(b).
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16. DISPUTE RESOLUTION: Unresolved controversies, claims and other matters in question between Buyer and
Seller arising out of, or relating to, this Contract or its breach, enforcement or interpretation (“Dispute”) will be settled

(a) Buyer and Seller will have 10 days after the date conflicting demands for the Deposit are made to attempt to
resolve such Dispute, failing which, Buyer and Seller shall submit such Dispute to mediation under Paragraph

(b) Buyer and Seller shall attempt to settle Disputes in an amicable manner through mediation pursuant to Florida
Rules for Certified and Court-Appointed Mediators and Chapter 44, F.S., as amended (the “Mediation Rules”).
The mediator must be certified or must have experience in the real estate industry. Injunctive relief may be
sought without first complying with this Paragraph 16(b). Disputes not settled pursuant to this Paragraph 16
361 may be resolved by instituting action in the appropriate court having jurisdiction of the matter. This Paragraph
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362 16 shall survive Closing or termination of this Contract.
363 17. ATTORNEY’S FEES; COSTS: The parties will split equally any mediation fee incurred in any mediation permitted
364 by this Contract, and each party will pay their own costs, expenses and fees, including attorney’s fees, incurred in
365 conducting the mediation. In any litigation permitted by this Contract, the prevailing party shall be entitled to recover
366 from the non-prevailing party costs and fees, including reasonable attorney’s fees, incurred in conducting the
367 litigation. This Paragraph 17 shall survive Closing or termination of this Contract.
STANDARDS FOR REAL ESTATE TRANSACTIONS (“STANDARDS”)
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368

369 18. STANDARDS:

370 A. TITLE:
371 (i) TITLE EVIDENCE; RESTRICTIONS; EASEMENTS; LIMITATIONS: Within the time period provided in
372 Paragraph 9(c), the Title Commitment, with legible copies of instruments listed as exceptions attached thereto, shall
373 be issued and delivered to Buyer. The Title Commitment shall set forth those matters to be discharged by Seller at
374 or before Closing and shall provide that, upon recording of the deed to Buyer, an owner’s policy of title insurance
375 in the amount of the Purchase Price, shall be issued to Buyer insuring Buyer’s marketable title to the Real Property,
376 subject only to the following matters: (a) comprehensive land use plans, zoning, and other land use restrictions,
377 prohibitions and requirements imposed by governmental authority; (b) restrictions and matters appearing on the
378 Plat or otherwise common to the subdivision; (c) outstanding oil, gas and mineral rights of record without right of
379 entry; (d) unplatted public utility easements of record (located contiguous to real property lines and not more than
380 10 feet in width as to rear or front lines and 7 1/2 feet in width as to side lines); (e) taxes for year of Closing and
381 subsequent years; and (f) assumed mortgages and purchase money mortgages, if any (if additional items, attach
382 addendum); provided, that, none prevent use of Property for RESIDENTIAL PURPOSES. If there exists at Closing
383 any violation of items identified in (b) – (f) above, then the same shall be deemed a title defect. Marketable title shall
384 be determined according to applicable Title Standards adopted by authority of The Florida Bar and in accordance
385 with law.

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STANDARDS FOR REAL ESTATE TRANSACTIONS (“STANDARDS”) CONTINUED

386 (ii) TITLE EXAMINATION: Buyer shall have 5 days after receipt of Title Commitment to examine it and notify Seller
387 in writing specifying defect(s), if any, that render title unmarketable. If Seller provides Title Commitment and it is
388 delivered to Buyer less than 5 days prior to Closing Date, Buyer may extend Closing for up to 5 days after date of
389 receipt to examine same in accordance with this STANDARD A. Seller shall have 30 days (“Cure Period”) after
390 receipt of Buyer’s notice to take reasonable diligent efforts to remove defects. If Buyer fails to so notify Seller, Buyer
391 shall be deemed to have accepted title as it then is. If Seller cures defects within Cure Period, Seller will deliver
392 written notice to Buyer (with proof of cure acceptable to Buyer and Buyer’s attorney) and the parties will close this
393 Contract on Closing Date (or if Closing Date has passed, within 10 days after Buyer’s receipt of Seller’s notice). If
394 Seller is unable to cure defects within Cure Period, then Buyer may, within 5 days after expiration of Cure Period,
395 deliver written notice to Seller: (a) extending Cure Period for a specified period not to exceed 120 days within which
396 Seller shall continue to use reasonable diligent effort to remove or cure the defects (“Extended Cure Period”); or
397 (b) electing to accept title with existing defects and close this Contract on Closing Date (or if Closing Date has
398 passed, within the earlier of 10 days after end of Extended Cure Period or Buyer’s receipt of Seller’s notice), or (c)
399 electing to terminate this Contract and receive a refund of the Deposit, thereby releasing Buyer and Seller from all
further obligations under this Contract. If after reasonable diligent effort, Seller is unable to timely cure defects, and

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401 Buyer does not waive the defects, this Contract shall terminate, and Buyer shall receive a refund of the Deposit,
402 thereby releasing Buyer and Seller from all further obligations under this Contract.
403 B. SURVEY: If Survey discloses encroachments on the Real Property or that improvements located thereon
404 encroach on setback lines, easements, or lands of others, or violate any restrictions, covenants, or applicable
405 governmental regulations described in STANDARD A (i)(a), (b) or (d) above, Buyer shall deliver written notice of
406
407
408
409
410
411
412
413
414
415
PL
such matters, together with a copy of Survey, to Seller within 5 days after Buyer’s receipt of Survey, but no later
than Closing. If Buyer timely delivers such notice and Survey to Seller, such matters identified in the notice and
Survey shall constitute a title defect, subject to cure obligations of STANDARD A above. If Seller has delivered a
prior survey, Seller shall, at Buyer’s request, execute an affidavit of “no change” to the Real Property since the
preparation of such prior survey, to the extent the affirmations therein are true and correct.
C. INGRESS AND EGRESS: Seller represents that there is ingress and egress to the Real Property and title to
the Real Property is insurable in accordance with STANDARD A without exception for lack of legal right of access.
D. LEASE INFORMATION: Seller shall, at least 10 days prior to Closing, furnish to Buyer estoppel letters from
tenant(s)/occupant(s) specifying nature and duration of occupancy, rental rates, advanced rent and security
deposits paid by tenant(s) or occupant(s)(“Estoppel Letter(s)”). If Seller is unable to obtain such Estoppel Letter(s)
416 the same information shall be furnished by Seller to Buyer within that time period in the form of a Seller’s affidavit
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417 and Buyer may thereafter contact tenant(s) or occupant(s) to confirm such information. If Estoppel Letter(s) or
418 Seller’s affidavit, if any, differ materially from Seller’s representations and lease(s) provided pursuant to Paragraph
419 6, or if tenant(s)/occupant(s) fail or refuse to confirm Seller’s affidavit, Buyer may deliver written notice to Seller
420 within 5 days after receipt of such information, but no later than 5 days prior to Closing Date, terminating this
421 Contract and receive a refund of the Deposit, thereby releasing Buyer and Seller from all further obligations under
422 this Contract. Seller shall, at Closing, deliver and assign all leases to Buyer who shall assume Seller’s obligations
423 thereunder.
SA

424 E. LIENS: Seller shall furnish to Buyer at Closing an affidavit attesting (i) to the absence of any financing
425 statement, claims of lien or potential lienors known to Seller and (ii) that there have been no improvements or
426 repairs to the Real Property for 90 days immediately preceding Closing Date. If the Real Property has been
427 improved or repaired within that time, Seller shall deliver releases or waivers of construction liens executed by all
428 general contractors, subcontractors, suppliers and materialmen in addition to Seller’s lien affidavit setting forth
429 names of all such general contractors, subcontractors, suppliers and materialmen, further affirming that all charges
430 for improvements or repairs which could serve as a basis for a construction lien or a claim for damages have been
431 paid or will be paid at Closing.
432 F. TIME: Time is of the essence in this Contract. Calendar days, based on where the Property is located, shall
433 be used in computing time periods. Other than time for acceptance and Effective Date as set forth in Paragraph 3,
434 any time periods provided for or dates specified in this Contract, whether preprinted, handwritten, typewritten or
435 inserted herein, which shall end or occur on a Saturday, Sunday, national legal public holiday (as defined in 5
436 U.S.C. Sec. 6103(a)), or a day on which a national legal public holiday is observed because it fell on a Saturday or
437 Sunday, shall extend to the next calendar day which is not a Saturday, Sunday or a day on which a national legal
438 public holiday is observed.
439 G. FORCE MAJEURE: Buyer or Seller shall not be required to exercise or perform any right or obligation under
440 this Contract or be liable to each other for damages so long as performance or non-performance of the right or
441 obligation, or the availability of services, insurance, or required approvals essential to Closing, is disrupted, delayed,

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442 caused or prevented by a Force Majeure event. “Force Majeure” means: hurricanes, floods, extreme weather,
443 earthquakes, fires, or other acts of God, unusual transportation delays, wars, insurrections, civil unrest, or acts of
444 terrorism, governmental actions and mandates, government shut downs, epidemics, or pandemics, which, by
445 exercise of reasonable diligent effort, the non-performing party is unable in whole or in part to prevent or overcome.
446 The Force Majeure event will be deemed to have begun on the first day the effect of the Force Majeure prevents
447 performance, non-performance, or the availability of services, insurance or required approvals essential to Closing.
448 All time periods affected by the Force Majeure event, including Closing Date, will be extended a reasonable time
449 up to 7 days after the Force Majeure event no longer prevents performance under this Contract; provided, however,
450 if such Force Majeure event continues to prevent performance under this Contract more than 30 days beyond
451 Closing Date, then either party may terminate this Contract by delivering written notice to the other and the Deposit
452 shall be refunded to Buyer, thereby releasing Buyer and Seller from all further obligations under this Contract.
453 H. CONVEYANCE: Seller shall convey marketable title to the Real Property by statutory warranty, trustee’s,
454 personal representative’s, or guardian’s deed, as appropriate to the status of Seller, subject only to matters
455 described in STANDARD A and those accepted by Buyer. Personal Property shall, at request of Buyer, be
456 transferred by absolute bill of sale with warranty of title, subject only to such matters as may be provided for in this
Contract.

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457
458 I. CLOSING LOCATION; DOCUMENTS; AND PROCEDURE:
459 (i) LOCATION: Closing will be conducted by the attorney or other closing agent (“Closing Agent”) designated by
460 the party paying for the owner’s policy of title insurance and will take place in the county where the Real Property
461 is located at the office of the Closing Agent, or at such other location agreed to by the parties. If there is no title
462 insurance, Seller will designate Closing Agent. Closing may be conducted by mail, overnight courier, or electronic
463
464
465
466
467
468
469
470
471
472
means.

PL
(ii) CLOSING DOCUMENTS: Seller shall at or prior to Closing, execute and deliver, as applicable, deed, bill of
sale, certificate(s) of title or other documents necessary to transfer title to the Property, construction lien affidavit(s),
owner’s possession and no lien affidavit(s), and assignment(s) of leases. Seller shall provide Buyer with paid
receipts for all work done on the Property pursuant to this Contract. Buyer shall furnish and pay for, as applicable,
the survey, flood elevation certification, and documents required by Buyer’s lender.
(iii) FinCEN GTO REPORTING OBLIGATION. If Closing Agent is required to comply with a U.S. Treasury
Department’s Financial Crimes Enforcement Network (“FinCEN”) Geographic Targeting Order (“GTO”), then Buyer
shall provide Closing Agent with essential information and documentation related to Buyer and its Beneficial
Owners, including photo identification, and related to the transaction contemplated by this Contract which are
473 required to complete mandatory reporting, including the Currency Transaction Report; and Buyer consents to
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474 Closing Agent’s collection and report of said information to IRS.
475 (iv) PROCEDURE: The deed shall be recorded upon Collection of all closing funds. If the Title Commitment
476 provides insurance against adverse matters pursuant to Section 627.7841, F.S., as amended, the escrow closing
477 procedure required by STANDARD J shall be waived, and Closing Agent shall, subject to Collection of all closing
478 funds, disburse at Closing the brokerage fees to Broker and the net sale proceeds to Seller.
479 J. ESCROW CLOSING PROCEDURE: If Title Commitment issued pursuant to Paragraph 9(c) does not provide
480 for insurance against adverse matters as permitted under Section 627.7841, F.S., as amended, the following
SA

481 escrow and closing procedures shall apply: (1) all Closing proceeds shall be held in escrow by the Closing Agent
482 for a period of not more than 10 days after Closing; (2) if Seller’s title is rendered unmarketable, through no fault of
483 Buyer, Buyer shall, within the 10 day period, notify Seller in writing of the defect and Seller shall have 30 days from
484 date of receipt of such notification to cure the defect; (3) if Seller fails to timely cure the defect, the Deposit and all
485 Closing funds paid by Buyer shall, within 5 days after written demand by Buyer, be refunded to Buyer and,
486 simultaneously with such repayment, Buyer shall return the Personal Property, vacate the Real Property and re-
487 convey the Property to Seller by special warranty deed and bill of sale; and (4) if Buyer fails to make timely demand
488 for refund of the Deposit, Buyer shall take title as is, waiving all rights against Seller as to any intervening defect
489 except as may be available to Buyer by virtue of warranties contained in the deed or bill of sale.
490 K. PRORATIONS; CREDITS: The following recurring items will be made current (if applicable) and prorated as of
491 the day prior to Closing Date, or date of occupancy if occupancy occurs before Closing Date: real estate taxes
492 (including special benefit tax assessments imposed by a CDD pursuant to Chapter 190, F.S., and assessments
493 imposed by special district(s) pursuant to Chapter 189, F.S.), interest, bonds, association fees, insurance, rents
494 and other expenses of Property. Buyer shall have option of taking over existing policies of insurance, if assumable,
495 in which event premiums shall be prorated. Cash at Closing shall be increased or decreased as may be required
496 by prorations to be made through day prior to Closing. Advance rent and security deposits, if any, will be credited
497 to Buyer. Escrow deposits held by Seller’s mortgagee will be paid to Seller. Taxes shall be prorated based on
498 current year’s tax. If Closing occurs on a date when current year’s millage is not fixed but current year’s assessment

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499 is available, taxes will be prorated based upon such assessment and prior year’s millage. If current year’s
500 assessment is not available, then taxes will be prorated on prior year’s tax. If there are completed improvements
501 on the Real Property by January 1st of year of Closing, which improvements were not in existence on January 1st
502 of prior year, then taxes shall be prorated based upon prior year’s millage and at an equitable assessment to be
503 agreed upon between the parties, failing which, request shall be made to the County Property Appraiser for an
504 informal assessment taking into account available exemptions. In all cases, due allowance shall be made for the
505 maximum allowable discounts and applicable homestead and other exemptions. A tax proration based on an
506 estimate shall, at either party’s request, be readjusted upon receipt of current year’s tax bill. This STANDARD K
507 shall survive Closing.
508 L. ACCESS TO PROPERTY TO CONDUCT APPRAISALS, INSPECTIONS, AND WALK-THROUGH: Seller
509 shall, upon reasonable notice, provide utilities service and access to Property for appraisals and inspections,
510 including a walk-through (or follow-up walk-through if necessary) prior to Closing.
511 M. RISK OF LOSS: If, after Effective Date, but before Closing, Property is damaged by fire or other casualty
512 (“Casualty Loss”) and cost of restoration (which shall include cost of pruning or removing damaged trees) does not
513 exceed 1.5% of Purchase Price, cost of restoration shall be an obligation of Seller and Closing shall proceed
pursuant to terms of this Contract. If restoration is not completed as of Closing, a sum equal to 125% of estimated

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514
515 cost to complete restoration (not to exceed 1.5% of Purchase Price) will be escrowed at Closing. If actual cost of
516 restoration exceeds escrowed amount, Seller shall pay such actual costs (but, not in excess of 1.5% of Purchase
517 Price). Any unused portion of escrowed amount shall be returned to Seller. If cost of restoration exceeds 1.5% of
518 Purchase Price, Buyer shall elect to either take Property “as is” together with the 1.5% or receive a refund of the
519 Deposit thereby releasing Buyer and Seller from all further obligations under this Contract. Seller’s sole obligation
520
521
522
523
524
525
526
527
528
529
PL
with respect to tree damage by casualty or other natural occurrence shall be cost of pruning or removal.
N. 1031 EXCHANGE: If either Seller or Buyer wish to enter into a like-kind exchange (either simultaneously with
Closing or deferred) under Section 1031 of the Internal Revenue Code (“Exchange”), the other party shall cooperate
in all reasonable respects to effectuate the Exchange, including execution of documents; provided, however,
cooperating party shall incur no liability or expense related to the Exchange, and Closing shall not be contingent
upon, nor extended or delayed by, such Exchange.
O. CONTRACT NOT RECORDABLE; PERSONS BOUND; NOTICE; DELIVERY; COPIES; CONTRACT
EXECUTION: Neither this Contract nor any notice of it shall be recorded in any public or official records. This
Contract shall be binding on, and inure to the benefit of, the parties and their respective heirs or successors in
interest. Whenever the context permits, singular shall include plural and one gender shall include all. Notice and
530 delivery given by or to the attorney or broker (including such broker’s real estate licensee) representing any party
M
531 shall be as effective as if given by or to that party. All notices must be in writing and may only be made by mail,
532 facsimile transmission, personal delivery or email. A facsimile or electronic copy of this Contract and any signatures
533 hereon shall be considered for all purposes as an original. This Contract may be executed by use of electronic
534 signatures, as determined by Florida’s Electronic Signature Act and other applicable laws.
535 P. INTEGRATION; MODIFICATION: This Contract contains the full and complete understanding and agreement
536 of Buyer and Seller with respect to the transaction contemplated by this Contract and no prior agreements or
537 representations shall be binding upon Buyer or Seller unless included in this Contract. No modification to or change
SA

538 in this Contract shall be valid or binding upon Buyer or Seller unless in writing and executed by the parties intended
539 to be bound by it.
540 Q. WAIVER: Failure of Buyer or Seller to insist on compliance with, or strict performance of, any provision of this
541 Contract, or to take advantage of any right under this Contract, shall not constitute a waiver of other provisions or
542 rights.
543 R. RIDERS; ADDENDA; TYPEWRITTEN OR HANDWRITTEN PROVISIONS: Riders, addenda, and typewritten
544 or handwritten provisions shall control all printed provisions of this Contract in conflict with them.
545 S. COLLECTION or COLLECTED: “Collection” or “Collected” means any checks tendered or received, including
546 Deposits, have become actually and finally collected and deposited in the account of Escrow Agent or Closing
547 Agent. Closing and disbursement of funds and delivery of closing documents may be delayed by Closing Agent
548 until such amounts have been Collected in Closing Agent’s accounts.
549 T. RESERVED.
550 U. APPLICABLE LAW AND VENUE: This Contract shall be construed in accordance with the laws of the State
551 of Florida and venue for resolution of all disputes, whether by mediation, arbitration or litigation, shall lie in the
552 county where the Real Property is located.
553 V. FIRPTA TAX WITHHOLDING: If a seller of U.S. real property is a “foreign person” as defined by FIRPTA,
554 Section 1445 of the Internal Revenue Code (“Code”) requires the buyer of the real property to withhold up to 15%
555 of the amount realized by the seller on the transfer and remit the withheld amount to the Internal Revenue Service

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556 (IRS) unless an exemption to the required withholding applies or the seller has obtained a Withholding Certificate
557 from the IRS authorizing a reduced amount of withholding.
558 (i) No withholding is required under Section 1445 of the Code if the Seller is not a “foreign person”. Seller can
559 provide proof of non-foreign status to Buyer by delivery of written certification signed under penalties of perjury,
560 stating that Seller is not a foreign person and containing Seller’s name, U.S. taxpayer identification number and
561 home address (or office address, in the case of an entity), as provided for in 26 CFR 1.1445-2(b). Otherwise, Buyer
562 shall withhold the applicable percentage of the amount realized by Seller on the transfer and timely remit said funds
563 to the IRS.
564 (ii) If Seller is a foreign person and has received a Withholding Certificate from the IRS which provides for reduced
565 or eliminated withholding in this transaction and provides same to Buyer by Closing, then Buyer shall withhold the
566 reduced sum required, if any, and timely remit said funds to the IRS.
567 (iii) If prior to Closing Seller has submitted a completed application to the IRS for a Withholding Certificate and has
568 provided to Buyer the notice required by 26 CFR 1.1445-1(c) (2)(i)(B) but no Withholding Certificate has been
569 received as of Closing, Buyer shall, at Closing, withhold the applicable percentage of the amount realized by Seller
570 on the transfer and, at Buyer’s option, either (a) timely remit the withheld funds to the IRS or (b) place the funds in
escrow, at Seller’s expense, with an escrow agent selected by Buyer and pursuant to terms negotiated by the

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571
572 parties, to be subsequently disbursed in accordance with the Withholding Certificate issued by the IRS or remitted
573 directly to the IRS if the Seller’s application is rejected or upon terms set forth in the escrow agreement.
574 (iv) In the event the net proceeds due Seller are not sufficient to meet the withholding requirement(s) in this
575 transaction, Seller shall deliver to Buyer, at Closing, the additional Collected funds necessary to satisfy the
576 applicable requirement and thereafter Buyer shall timely remit said funds to the IRS or escrow the funds for
577
578
579
580
581
582
583
584
585
586
8288 and 8288-A, as filed.
W. RESERVED PL
disbursement in accordance with the final determination of the IRS, as applicable.
(v) Upon remitting funds to the IRS pursuant to this STANDARD, Buyer shall provide Seller copies of IRS Forms

X. BUYER WAIVER OF CLAIMS: To the extent permitted by law, Buyer waives any claims against Seller
and against any real estate licensee involved in the negotiation of this Contract for any damage or defects
pertaining to the physical condition of the Property that may exist at Closing of this Contract and be
subsequently discovered by the Buyer or anyone claiming by, through, under or against the Buyer. This
provision does not relieve Seller’s obligation to comply with Paragraph 10(j). This Standard X shall survive
Closing.
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587 ADDENDA AND ADDITIONAL TERMS
589 19. ADDENDA: The following additional terms are included in the attached addenda or riders and incorporated into this
590 Contract (Check if applicable):
A. Condominium Rider M. Defective Drywall X. Kick-out Clause
B. Homeowners’ Assn. N. Coastal Construction Control Y. Seller’s Attorney Approval
C. Seller Financing Line Z. Buyer’s Attorney Approval
D. Mortgage Assumption O. Insulation Disclosure AA. Licensee Property Interest
SA

E. FHA/VA Financing P. Lead Paint Disclosure (Pre-1978) BB. Binding Arbitration

F. Appraisal Contingency Q. Housing for Older Persons CC. Miami-Dade County
G. Short Sale R. Rezoning Special Taxing District
H. Homeowners/Flood Ins. S. Lease Purchase/ Lease Option Disclosure
I. RESERVED T. Pre-Closing Occupancy DD. Seasonal/Vacation Rentals
J. Interest-Bearing Acct U. Post-Closing Occupancy EE. PACE Disclosure
K. RESERVED V. Sale of Buyer’s Property Other:____________________
L. RESERVED W. Back-up Contract ____________________
. ____________________

Buyer’s Initials _________ __________ Page 11 of 12 Seller’s Initials __________ __________

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591 20. ADDITIONAL TERMS: _______________________________________________________________________

592 __________________________________________________________________________________________
593 __________________________________________________________________________________________
594 __________________________________________________________________________________________
595 __________________________________________________________________________________________
596 __________________________________________________________________________________________
597 __________________________________________________________________________________________
598 __________________________________________________________________________________________
599 __________________________________________________________________________________________
600 __________________________________________________________________________________________
601 __________________________________________________________________________________________
602 __________________________________________________________________________________________
603 __________________________________________________________________________________________
604 __________________________________________________________________________________________
605 __________________________________________________________________________________________
__________________________________________________________________________________________

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606
607 __________________________________________________________________________________________
608 __________________________________________________________________________________________

609 COUNTER-OFFER
610 Seller counters Buyer’s offer.
611
612

613

614
615
616
617
PL
THIS IS INTENDED TO BE A LEGALLY BINDING CONTRACT. IF NOT FULLY UNDERSTOOD, SEEK THE
ADVICE OF AN ATTORNEY PRIOR TO SIGNING.

THIS FORM HAS BEEN APPROVED BY THE FLORIDA REALTORS AND THE FLORIDA BAR.

Approval of this form by the Florida Realtors and The Florida Bar does not constitute an opinion that any of the
terms and conditions in this Contract should be accepted by the parties in a particular transaction. Terms and
conditions should be negotiated based upon the respective interests, objectives and bargaining positions of all
interested persons.
M
618 AN ASTERISK (*) FOLLOWING A LINE NUMBER IN THE MARGIN INDICATES THE LINE CONTAINS A BLANK
619 TO BE COMPLETED.

620 Buyer: Date:

621 Buyer: Date:
622 Seller: Date:
SA

623 Seller: Date:

624 Buyer’s address for purposes of notice Seller’s address for purposes of notice
625 ___________________________________________ ____________________________________________
626 ___________________________________________ ____________________________________________
627 ___________________________________________ ____________________________________________

628 BROKER: Listing and Cooperating Brokers, if any, named below (collectively, “Broker”), are the only Brokers
629 entitled to compensation in connection with this Contract. Instruction to Closing Agent: Seller and Buyer direct
630 Closing Agent to disburse at Closing the full amount of the brokerage fees as specified in separate brokerage
631 agreements with the parties and cooperative agreements between the Brokers, except to the extent Broker has
632 retained such fees from the escrowed funds. This Contract shall not modify any MLS or other offer of compensation
633 made by Seller or Listing Broker to Cooperating Brokers.

634 ___________________________________________ __________________________________________

635 Cooperating Sales Associate, if any Listing Sales Associate
636 ___________________________________________ __________________________________________
637 Cooperating Broker, if any Listing Broker

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Florida Real Estate Sales Associate Post-License Course Reicon Publishing, LLC
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Florida Real Estate Sales Associate Post-License Course Reicon Publishing, LLC
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Exclusive Buyer Brokerage Agreement

1. PARTIES: ______________________________("Buyer")grants
____________________________________ ("Broker")
Real Estate Broker I Office
the exclusive right to work with and assist Buyer in locating and negotiating the acquisition of suitable real property as
described below. The term "acquire" or "acquisition" includes any purchase, option, exchange, lease or other acquisition of an
ownership or equity interest in real property.
2. TERM: This Agreement will begin on the ___ day of ______, ___ and will terminate at 11 :59 p.m. on the
___ day of _______, ___ ("Termination Date"). However, if Buyer enters into an agreement to acquire
property that is pending on the Termination Date, this Agreement will continue in effect until that transaction has closed or
otherwise terminated.

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3. PROPERTY: Buyer is interested in acquiring real property as follows or as otherwise acceptable to Buyer
("Property"):
(a) Type of property:
(b) Location:

D Buyer has been □ pre-qualified D pre-approved by ______________________

(c) Price range: $ ___________ to$ ___________

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for (amount and terms, if any)________________________________
(d) Preferred terms and conditions: ____________________________

4. BROKER'S OBLIGATIONS:
(a) Broker Assistance. Broker will
* use Broker's professional knowledge and skills;
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* assist Buyer in determining Buyer's financial capability and financing options;
* discuss property requirements and assist Buyer in locating and viewing suitable properties;
* assist Buyer to contract for property, monitor deadlines and close any resulting transaction;
* cooperate with real estate licensees working with the seller, if any, to affect a transaction. Buyer understands that
even if Broker is compensated by a seller or a real estate licensee who is working with a seller, such
compensation does not compromise Broker's duties to Buyer.
(b) Other Buyers. Buyer understands that Broker may work with other prospective buyers who want to acquire the
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same property as Buyer. If Broker submits offers by competing buyers, Broker will notify Buyer that a competing
offer has been made, but will not disclose any of the offer's material terms or conditions. Buyer agrees that Broker
may make competing buyers aware of the existence of any ofter Buyer makes, so long as Broker does not reveal any
material terms or conditions of the ofter without Buyer's prior written consent.
(c) Fair Housing. Broker adheres to the principles expressed in the Fair Housing Act and will not participate in any
act that unlawfully discriminates on the basis of race, color, religion, sex, handicap, familial status, country of national origin
or any other category protected under federal, state or local law.
(d) Service Providers. Broker does not warrant or guarantee products or services provided by any third party whom
Broker, at Buyer's request, refers or recommends to Buyer in connection with property acquisition.

Buyer (_) (_) and Broker/Sales Associate (_) (_) acknowledge receipt of a copy of this page, which is Page 1 of 4 Pages.

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Exclusive Right of Sale Listing Agreement

1 This Exclusive Right of Sale Listing Agreement ("Agreement") is between

2* ______________________________________________________________________________________ ("Seller")
3* and _________________________________________________________________________________ ("Broker").

4 1. Authority to Sell Property: Seller gives Broker the EXCLUSIVE RIGHT TO SELL the real and personal
5 property (collectively "Property") described below, at the price and terms described below, beginning
6* ____________________ and terminating at 11:59 p.m. on ____________________ ("Termination Date"). Upon
7 full execution of a contract for sale and purchase of the Property, all rights and obligations of this Agreement will
8 automatically extend through the date of the actual closing of the sales contract. Seller and Broker acknowledge
9 that this Agreement does not guarantee a sale. This Property will be offered to any person without regard to race,
10 color, religion, sex, handicap, familial status, national origin, or any other factor protected by federal, state, or local
11 law. Seller certifies and represents that she/he/it is legally entitled to convey the Property and all improvements.
12 2. Description of Property:

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13* (a) Street Address: __________________________________________________________________________
14 ________________________________________________________________________________________
15* Legal Description: _________________________________________________________________________
16* ____________________________________________________ See Attachment ___________________

17*

18*

19
20*

21
22*
23*
24*
(c) Occupancy:
Property is
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(b) Personal Property, including appliances: _____________________________________________________
____________________________________________________ See Attachment ___________________

is not currently occupied by a tenant. If occupied, the lease term expires _______________.
3. Price and Terms: The property is offered for sale on the following terms or on other terms acceptable to Seller:
(a) Price: $____________________
(b) Financing Terms: Cash Conventional VA FHA Other (specify) ________________________
Seller Financing: Seller will hold a purchase money mortgage in the amount of $_____________________
25* with the following terms: _____________________________________________________________________
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26* Assumption of Existing Mortgage: Buyer may assume existing mortgage for $___________________ plus
27* an assumption fee of $____________________. The mortgage is for a term of ______ years beginning in
28* ______, at an interest rate of ______% fixed variable (describe) ______________________________.
29* Lender approval of assumption is required is not required unknown. Notice to Seller: (1) You may
30 remain liable for an assumed mortgage for a number of years after the Property is sold. Check with your
31 lender to determine the extent of your liability. Seller will ensure that all mortgage payments and required
32 escrow deposits are current at the time of closing and will convey the escrow deposit to the buyer at closing.
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33 (2) Extensive regulations affect Seller financed transactions. It is beyond the scope of a real estate licensee's
34 authority to determine whether the terms of your Seller financing agreement comply with all applicable laws or
35 whether you must be registered and/or licensed as a loan originator before offering Seller financing. You are
36 advised to consult with a legal or mortgage professional to make this determination.
37* (c) Seller Expenses: Seller will pay mortgage discount or other closing costs not to exceed ______% of the
38 purchase price and any other expenses Seller agrees to pay in connection with a transaction.
39 4. Broker Obligations: Broker agrees to make diligent and continued efforts to sell the Property in accordance with
40 this Agreement until a sales contract is pending on the Property.
41 5. Multiple Listing Service: Placing the Property in a multiple listing service (the “MLS”) is beneficial to Seller
42 because the Property will be exposed to a large number of potential buyers. As a MLS participant, Broker is
43 obligated to enter the Property into the MLS within one (1) business day of marketing the Property to the public
44 (see Paragraph 6(a)) or as necessary to comply with local MLS rule(s). This listing will be published accordingly in
45 the MLS unless Seller directs Broker otherwise in writing. (See paragraph 6(b)(i)). Seller authorizes Broker to
46 report to the MLS this listing information and price, terms, and financing information on any resulting sale for use
47 by authorized Board / Association members and MLS participants and subscribers unless Seller directs Broker
48 otherwise in writing.

Seller (_____) (_____) and Broker/Sales Associate (_____) (_____) acknowledge receipt of a copy of this page, which is Page 1 of 4.
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49 6. Broker Authority: Seller authorizes Broker to:

50 (a) Market the Property to the Public (unless limited in Paragraph 6(b)(i) below):
51 (i) Public marketing includes, but is not limited to, flyers, yard signs, digital marketing on public facing
52 websites, brokerage website displays (i.e. IDX or VOW), email blasts, multi-brokerage listing sharing
53 networks and applications available to the general public.
54 (ii) Public marketing also includes marketing the Property to real estate agents outside Broker’s
55 office.
56 (iii) Place appropriate transaction signs on the Property, except if Paragraph 6(b)(i) is checked below.
57 (iv) Use Seller’s name in connection with marketing or advertising the Property.
58* __ Display the Property on the Internet except the street address.
59 (b) Not Publicly Market to the Public/Seller Opt-Out:
60* (i) __ Seller does not authorize Broker to display the Property on the MLS.
61 (ii) Seller understands and acknowledges that if Seller checks option 6(b)(i), a For Sale sign will not be
62 placed upon the Property and
63 (iii) Seller understands and acknowledges that if Seller checks option 6(b)(i), Broker will be limited to
64 marketing the Property only to agents within Broker’s office.

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65* __________ /__________ Initials of Seller
66 (c) Obtain information relating to the present mortgage(s) on the Property.
67 (d) Provide objective comparative market analysis information to potential buyers.
68* (e) (Check if applicable) Use a lock box system to show and access the Property. A lock box does not
69 ensure the Property's security. Seller is advised to secure or remove valuables. Seller agrees that the lock
70 box is for Seller's benefit and releases Broker, persons working through Broker, and Broker's local Realtor
Board / Association from all liability and responsibility in connection with any damage or loss that occurs.
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72*
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Withhold verbal offers.
(f) Act as a transaction broker.
PLWithhold all offers once Seller accepts a sales contract for the Property.

(g) Virtual Office Websites: Some real estate brokerages offer real estate brokerage services online. These
websites are referred to as Virtual Office Websites ("VOWs"). An automated estimate of market value or
reviews and comments about a property may be displayed in conjunction with a property on some VOWs.
Anyone who registers on a VOW may gain access to such automated valuations or comments and reviews
about any property displayed on a VOW. Unless limited below, a VOW may display automated valuations or
comments and reviews about this Property.
Seller does not authorize an automated estimate of the market value of the listing (or a hyperlink to such
estimate) to be displayed in immediate conjunction with the listing of this Property.
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Seller does not authorize third parties to write comments or reviews about the listing of the Property (or
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83 display a hyperlink to such comments or reviews) in immediate conjunction with the listing of this Property.
84 7. Seller Obligations: In consideration of Broker's obligations, Seller agrees to:
85 (a) Cooperate with Broker in carrying out the purpose of this Agreement, including referring immediately to
86 Broker all inquiries regarding the Property's transfer, whether by purchase or any other means of transfer.
87 (b) Recognize Broker may be subject to additional MLS obligations and potential penalties for failure to comply
88 with them.
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89 (c) Provide Broker with keys to the Property and make the Property available for Broker to show during
90 reasonable times.
91 (d) Inform Broker before leasing, mortgaging, or otherwise encumbering the Property.
92 (e) Indemnify Broker and hold Broker harmless from losses, damages, costs, and expenses of any nature,
93 including attorney's fees, and from liability to any person, that Broker incurs because of (1) Seller's
94 negligence, representations, misrepresentations, actions, or inactions; (2) the use of a lock box; (3) the
95 existence of undisclosed material facts about the Property; or (4) a court or arbitration decision that a broker
96 who was not compensated in connection with a transaction is entitled to compensation from Broker. This
97 clause will survive Broker's performance and the transfer of title.
98 (f) Perform any act reasonably necessary to comply with FIRPTA (Section 1445 of the Internal Revenue Code).
99 (g) Make all legally required disclosures, including all facts that materially affect the Property's value and are not
100 readily observable or known by the buyer. Seller certifies and represents that Seller knows of no such
101 material facts (local government building code violations, unobservable defects, etc.) other than the following:
102* _______________________________________________________________________________________
103 Seller will immediately inform Broker of any material facts that arise after signing this Agreement.
104 (h) Consult appropriate professionals for related legal, tax, property condition, environmental, foreign reporting
105 requirements, and other specialized advice.

Seller (_____) (_____) and Broker/Sales Associate (_____) (_____) acknowledge receipt of a copy of this page, which is Page 2 of 4.
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106 8. Compensation: Seller will compensate Broker as specified below for procuring a buyer who is ready, willing,
107 and able to purchase the Property or any interest in the Property on the terms of this Agreement or on any other
108 terms acceptable to Seller. Seller will pay Broker as follows (plus applicable sales tax):
109* (a) __________% of the total purchase price plus $____________________ OR $____________________, no
110 later than the date of closing specified in the sales contract. However, closing is not a prerequisite for Broker's
111 fee being earned.
112* (b) __________ ($ or %) of the consideration paid for an option, at the time an option is created. If the option
113 is exercised, Seller will pay Broker the Paragraph 8(a) fee, less the amount Broker received under this
114 subparagraph.
115* (c) __________ ($ or %) of gross lease value as a leasing fee, on the date Seller enters into a lease or
116 agreement to lease, whichever is earlier. This fee is not due if the Property is or becomes the subject of a
117 contract granting an exclusive right to lease the Property.
118 (d) Broker's fee is due in the following circumstances: (1) If any interest in the Property is transferred, whether by
119 sale, lease, exchange, governmental action, bankruptcy, or any other means of transfer, regardless of whether
120 the buyer is secured by Seller, Broker, or any other person. (2) If Seller refuses or fails to sign an offer at the
121 price and terms stated in this Agreement, defaults on an executed sales contract, or agrees with a buyer to
cancel an executed sales contract. (3) If, within ______ days after Termination Date ("Protection Period"),

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122*
123 Seller transfers or contracts to transfer the Property or any interest in the Property to any prospects with whom
124 Seller, Broker, or any real estate licensee communicated regarding the Property before Termination Date.
125 However, no fee will be due Broker if the Property is relisted after Termination Date and sold through another
126 broker.
127* (e) Retained Deposits: As consideration for Broker's services, Broker is entitled to receive ______% (50% if
left blank) of all deposits that Seller retains as liquidated damages for a buyer's default in a transaction, not to
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136*

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exceed the Paragraph 8(a) fee.

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9. Cooperation with and Compensation to Other Brokers: Notice to Seller: The buyer's broker, even if
compensated by Seller or Broker, may represent the interests of the buyer. Broker's office policy is to cooperate
with all other brokers except when not in Seller's best interest and to offer compensation in the amount of
______% of the purchase price or $_______________ to a single agent for the buyer;
purchase price or $_______________ to a transaction broker for the buyer; and
price or $_______________ to a broker who has no brokerage relationship with the buyer.
None of the above. (If this is checked, the Property cannot be placed in the MLS.)
______% of the
______% of the purchase

10. Brokerage Relationship: Broker will act as a transaction broker. Broker will deal honestly and fairly; will account
for all funds; will use skill, care, and diligence in the transaction; will disclose all known facts that materially affect
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139 the value of the residential property which are not readily observable to the buyer; will present all offers and
140 counteroffers in a timely manner unless directed otherwise in writing; and will have limited confidentiality with
141 Seller unless waived in writing.
142 11. Conditional Termination: At Seller's request, Broker may agree to conditionally terminate this Agreement. If
143 Broker agrees to conditional termination, Seller must sign a withdrawal agreement, reimburse Broker for all direct
144* expenses incurred in marketing the Property, and pay a cancellation fee of $____________________ plus
applicable sales tax. Broker may void the conditional termination, and Seller will pay the fee stated in Paragraph
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145
146 8(a) less the cancellation fee if Seller transfers or contracts to transfer the Property or any interest in the Property
147 during the time period from the date of conditional termination to Termination Date and Protection Period, if
148 applicable.
149 12. Dispute Resolution: This Agreement will be construed under Florida law. All controversies, claims, and other
150 matters in question between the parties arising out of or relating to this Agreement or the breach thereof will be
151 settled by first attempting mediation under the rules of the American Mediation Association or other mediator
152 agreed upon by the parties. If litigation arises out of this Agreement, the prevailing party will be entitled to recover
153 reasonable attorney's fees and costs, unless the parties agree that disputes will be settled by arbitration as follows:
154* Arbitration: By initialing in the space provided, Seller (____) (____), Sales Associate (____), and Broker (____)
155 agree that disputes not resolved by mediation will be settled by neutral binding arbitration in the county in which
156 the Property is located in accordance with the rules of the American Arbitration Association or other arbitrator
157 agreed upon by the parties. Each party to any arbitration (or litigation to enforce the arbitration provision of this
158 Agreement or an arbitration award) will pay its own fees, costs, and expenses, including attorney's fees, and will
159 equally split the arbitrator's fees and administrative fees of arbitration.
160 13. Miscellaneous: This Agreement is binding on Seller's and Broker's heirs, personal representatives,
161 administrators, successors, and assigns. Broker may assign this Agreement to another listing office. This

Seller (_____) (_____) and Broker/Sales Associate (_____) (_____) acknowledge receipt of a copy of this page, which is Page 3 of 4.
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162 Agreement is the entire agreement between Seller and Broker. No prior or present agreements or representations
163 will be binding on Seller or Broker unless included in this Agreement. Electronic signatures are acceptable and
164 will be binding. Signatures, initials, and modifications communicated by facsimile will be considered as originals.
165 The term "buyer" as used in this Agreement includes buyers, tenants, exchangors, optionees, and other categories
166 of potential or actual transferees.

167* 14. Additional Terms: __________________________________________________________________________

168 ______________________________________________________________________________________________

169 ______________________________________________________________________________________________
170 ______________________________________________________________________________________________
171 ______________________________________________________________________________________________
172 ______________________________________________________________________________________________

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173 ______________________________________________________________________________________________

174 ______________________________________________________________________________________________
175 ______________________________________________________________________________________________
176

177

178

179

180*

181*
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______________________________________________________________________________________________

______________________________________________________________________________________________

______________________________________________________________________________________________

______________________________________________________________________________________________

Seller's Signature: _________________________________________________ Date: _______________________

Home Telephone: __________________ Work Telephone: __________________ Facsimile: ___________________

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182* Address: ______________________________________________________________________________________

183* Email Address: _________________________________________________________________________________

184* Seller's Signature: _________________________________________________ Date: _______________________

185* Home Telephone: __________________ Work Telephone: __________________ Facsimile: ___________________

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186* Address: ______________________________________________________________________________________

187* Email Address: _________________________________________________________________________________

188* Authorized Sales Associate or Broker: ________________________________ Date: _______________________

189* Brokerage Firm Name: _____________________________________________ Telephone: ___________________

190* Address: ______________________________________________________________________________________

191* Copy returned to Seller on _____________________ by email facsimile mail personal delivery.

Florida REALTORS® makes no representation as to the legal validity or adequacy of any provision of this form in any specific transaction. This standardized form
should not be used in complex transactions or with extensive riders or additions. This form is available for use by the entire real estate industry and is not intended to
identify the user as REALTOR®. REALTOR® is a registered collective membership mark which may be used only by real estate licensees who are members of the
NATIONAL ASSOCIATION OF REALTORS® and who subscribe to its Code of Ethics. The copyright laws of United States (17 U.S. Code) forbid the unauthorized
reproduction of this form by any means including facsimile or computerized forms.

Seller (_____) (_____) and Broker/Sales Associate (_____) (_____) acknowledge receipt of a copy of this page, which is Page 4 of 4.
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Residential Contract For Sale And Purchase

THIS FORM HAS BEEN APPROVED BY THE FLORIDA REALTORS AND THE FLORIDA BAR

1 PARTIES: ("Seller"),
2 and ("Buyer"),
3 agree that Seller shall sell and Buyer shall buy the following described Real Property and Personal Property
4 (collectively “Property”) pursuant to the terms and conditions of this Residential Contract For Sale And Purchase and
5 any riders and addenda (“Contract”):
6 1. PROPERTY DESCRIPTION:
7 (a) Street address, city, zip:
8 (b) Located in: ______________ County, Florida. Property Tax ID #:
9 (c) Real Property: The legal description is
10
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12 together with all existing improvements and fixtures, including built-in appliances, built-in furnishings and

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13 attached wall-to-wall carpeting and flooring (“Real Property”) unless specifically excluded in Paragraph 1(e) or
14 by other terms of this Contract.
15 (d) Personal Property: Unless excluded in Paragraph 1(e) or by other terms of this Contract, the following items
16 which are owned by Seller and existing on the Property as of the date of the initial offer are included in the
17 purchase: range(s)/oven(s), refrigerator(s), dishwasher(s), disposal, ceiling fan(s), intercom, light fixture(s),
18 drapery rods and draperies, blinds, window treatments, smoke detector(s), garage door opener(s), security gate
19
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24

25

26
PL
and other access devices, and storm shutters/panels ("Personal Property").
Other Personal Property items included in this purchase are:

Personal Property is included in the Purchase Price, has no contributory value, and shall be left for the Buyer.
(e) The following items are excluded from the purchase:

PURCHASE PRICE AND CLOSING

2. PURCHASE PRICE (U.S. currency):................................................................................................$
27 (a) Initial deposit to be held in escrow in the amount of (checks subject to COLLECTION) .......$
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28 The initial deposit made payable and delivered to “Escrow Agent” named below
29 (CHECK ONE): (i) accompanies offer or (ii) is to be made within _____ (if left
30 blank, then 3) days after Effective Date. IF NEITHER BOX IS CHECKED, THEN
31 OPTION (ii) SHALL BE DEEMED SELECTED.
32 Escrow Agent Information: Name:
33 Address:
34 Phone: E-mail: Fax:
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35 (b) Additional deposit to be delivered to Escrow Agent within __________ (if left blank, then 10)
36 days after Effective Date ......................................................................................................... $______________
37 (All deposits paid or agreed to be paid, are collectively referred to as the “Deposit”)
38 (c) Financing: Express as a dollar amount or percentage (“Loan Amount”) see Paragraph 8....... ______________
39 (d) Other: .............. $______________
40 (e) Balance to close (not including Buyer’s closing costs, prepaids and prorations) by wire
41 transfer or other COLLECTED funds ...................................................................................... $______________
42 NOTE: For the definition of “COLLECTION” or “COLLECTED” see STANDARD S.
43 3. TIME FOR ACCEPTANCE OF OFFER AND COUNTER-OFFERS; EFFECTIVE DATE:
44 (a) If not signed by Buyer and Seller, and an executed copy delivered to all parties on or before
45 ________________________, this offer shall be deemed withdrawn and the Deposit, if any, shall be returned
46 to Buyer. Unless otherwise stated, time for acceptance of any counter-offers shall be within 2 days after the day
47 the counter-offer is delivered.
48 (b) The effective date of this Contract shall be the date when the last one of the Buyer and Seller has signed or
49 initialed and delivered this offer or final counter-offer (“Effective Date”).
50 4. CLOSING DATE: Unless modified by other provisions of this Contract, the closing of this transaction shall occur
51 and the closing documents required to be furnished by each party pursuant to this Contract shall be delivered
52 (“Closing”) on _____________________________ (“Closing Date”), at the time established by the Closing Agent.

Buyer’s Initials _________ __________ Page 1 of 13 Seller’s Initials __________ __________

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53 5. EXTENSION OF CLOSING DATE:

54 (a) If Paragraph 8(b) is checked and Closing funds from Buyer’s lender(s) are not available on Closing Date due
55 to Consumer Financial Protection Bureau Closing Disclosure delivery requirements (“CFPB Requirements”),
56 then Closing Date shall be extended for such period necessary to satisfy CFPB Requirements, provided such
57 period shall not exceed 10 days.
58 (b) If an event constituting “Force Majeure” causes services essential for Closing to be unavailable, including the
59 unavailability of utilities or issuance of hazard, wind, flood or homeowners’ insurance, Closing Date shall be
60 extended as provided in STANDARD G.
61 6. OCCUPANCY AND POSSESSION:
62 (a) Unless the box in Paragraph 6(b) is checked, Seller shall, at Closing, deliver occupancy and possession of the
63 Property to Buyer free of tenants, occupants and future tenancies. Also, at Closing, Seller shall have removed
64 all personal items and trash from the Property and shall deliver all keys, garage door openers, access devices
65 and codes, as applicable, to Buyer. If occupancy is to be delivered before Closing, Buyer assumes all risks of
66 loss to the Property from date of occupancy, shall be responsible and liable for maintenance from that date,
67 and shall be deemed to have accepted the Property in its existing condition as of time of taking occupancy,
except with respect to any items identified by Buyer pursuant to Paragraph 12, prior to taking occupancy, which

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69 require repair, replacement, treatment or remedy.
70 (b) CHECK IF PROPERTY IS SUBJECT TO LEASE(S) OR OCCUPANCY AFTER CLOSING. If Property is
71 subject to a lease(s) after Closing or is intended to be rented or occupied by third parties beyond Closing, the
72 facts and terms thereof shall be disclosed in writing by Seller to Buyer and copies of the written lease(s) shall
73 be delivered to Buyer, all within 5 days after Effective Date. If Buyer determines, in Buyer’s sole discretion, that
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7. ASSIGNABILITY: (CHECK ONE): Buyer
this Contract;
Contract.
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the lease(s) or terms of occupancy are not acceptable to Buyer, Buyer may terminate this Contract by delivery
of written notice of such election to Seller within 5 days after receipt of the above items from Seller, and Buyer
shall be refunded the Deposit thereby releasing Buyer and Seller from all further obligations under this Contract.
Estoppel Letter(s) and Seller’s affidavit shall be provided pursuant to STANDARD D. If Property is intended to
be occupied by Seller after Closing, see Rider U. POST-CLOSING OCCUPANCY BY SELLER.
may assign and thereby be released from any further liability under
may assign but not be released from liability under this Contract; or

FINANCING
may not assign this

83 8. FINANCING:
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84 (a) Buyer will pay cash for the purchase of the Property at Closing. There is no financing contingency to Buyer’s
85 obligation to close. If Buyer obtains a loan for any part of the Purchase Price of the Property, Buyer acknowledges
86 that any terms and conditions imposed by Buyer’s lender(s) or by CFPB Requirements shall not affect or extend
87 the Buyer’s obligation to close or otherwise affect any terms or conditions of this Contract.
88 (b) This Contract is contingent upon Buyer obtaining approval of a conventional FHA VA or other
89 ______________ (describe) loan within _______ (if left blank, then 30) days after Effective Date (“Loan Approval
90 Period”) for (CHECK ONE): fixed, adjustable, fixed or adjustable rate in the Loan Amount (See Paragraph
SA

91 2(c)), at an initial interest rate not to exceed _______ % (if left blank, then prevailing rate based upon Buyer’s
92 creditworthiness), and for a term of _______(if left blank, then 30) years (“Financing”).
93 (i) Buyer shall make mortgage loan application for the Financing within _______ (if left blank, then 5) days
94 after Effective Date and use good faith and diligent effort to obtain approval of a loan meeting the Financing terms
95 (“Loan Approval”) and thereafter to close this Contract. Loan Approval which requires a condition related to the sale
96 by Buyer of other property shall not be deemed Loan Approval for purposes of this subparagraph.
97 Buyer’s failure to use diligent effort to obtain Loan Approval during the Loan Approval Period shall be considered a
98 default under the terms of this Contract. For purposes of this provision, “diligent effort” includes, but is not limited
99 to, timely furnishing all documents and information and paying of all fees and charges requested by Buyer’s
100 mortgage broker and lender in connection with Buyer’s mortgage loan application.
101 (ii) Buyer shall keep Seller and Broker fully informed about the status of Buyer’s mortgage loan application,
102 Loan Approval, and loan processing and authorizes Buyer’s mortgage broker, lender, and Closing Agent to disclose
103 such status and progress, and release preliminary and finally executed closing disclosures and settlement
104 statements, to Seller and Broker.
105 (iii) Upon Buyer obtaining Loan Approval, Buyer shall promptly deliver written notice of such approval to Seller.

Buyer’s Initials _________ __________ Page 2 of 13 Seller’s Initials __________ __________

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106 (iv) If Buyer is unable to obtain Loan Approval after the exercise of diligent effort, then at any time prior to
107 expiration of the Loan Approval Period, Buyer may provide written notice to Seller stating that Buyer has been
108 unable to obtain Loan Approval and has elected to either:
109 (1) waive Loan Approval, in which event this Contract will continue as if Loan Approval had been obtained; or
110 (2) terminate this Contract.
111 (v) If Buyer fails to timely deliver either notice provided in Paragraph 8(b)(iii) or (iv), above, to Seller prior to
112 expiration of the Loan Approval Period, then Loan Approval shall be deemed waived, in which event this Contract
113 will continue as if Loan Approval had been obtained, provided however, Seller may elect to terminate this Contract
114 by delivering written notice to Buyer within 3 days after expiration of the Loan Approval Period.
115 (vi) If this Contract is timely terminated as provided by Paragraph 8(b)(iv)(2) or (v), above, and Buyer is not in
116 default under the terms of this Contract, Buyer shall be refunded the Deposit thereby releasing Buyer and Seller
117 from all further obligations under this Contract.
118 (vii) If Loan Approval has been obtained, or deemed to have been obtained, as provided above, and Buyer
119 fails to close this Contract, then the Deposit shall be paid to Seller unless failure to close is due to: (1) Seller’s
120 default or inability to satisfy other contingencies of this Contract; (2) Property related conditions of the Loan Approval
have not been met (except when such conditions are waived by other provisions of this Contract); or (3) appraisal

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122 of the Property obtained by Buyer’s lender is insufficient to meet terms of the Loan Approval, in which event(s) the
123 Buyer shall be refunded the Deposit, thereby releasing Buyer and Seller from all further obligations under this
124 Contract.
125 (c) Assumption of existing mortgage (see rider for terms).
126 (d) Purchase money note and mortgage to Seller (see riders; addenda; or special clauses for terms).
127
128

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(a) COSTS TO BE PAID BY SELLER: PL CLOSING COSTS, FEES AND CHARGES
9. CLOSING COSTS; TITLE INSURANCE; SURVEY; HOME WARRANTY; SPECIAL ASSESSMENTS:

• Documentary stamp taxes and surtax on deed, if any • HOA/Condominium Association estoppel fees
• Owner’s Policy and Charges (if Paragraph 9(c)(i) is checked) • Recording and other fees needed to cure title
• Title search charges (if Paragraph 9(c)(iii) is checked) • Seller’s attorneys’ fees
• Municipal lien search (if Paragraph 9(c)(i) or (iii) is checked) • Other:
Seller shall pay the following amounts/percentages of the Purchase Price for the following costs and expenses:
136 (i) up to $ _____________ or _________ % (1.5% if left blank) for General Repair Items (“General Repair
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137 Limit”); and
138 (ii) up to $ _____________ or _________ % (1.5% if left blank) for WDO treatment and repairs (“WDO Repair
139 Limit”); and
140 (iii) up to $ _____________ or _________ % (1.5% if left blank) for costs associated with closing out open or
141 expired building permits and obtaining required building permits for any existing improvement for which a
142 permit was not obtained (“Permit Limit”).
143 If, prior to Closing, Seller is unable to meet the Maintenance Requirement as required by Paragraph 11 or the
repairs, replacements, treatments or permitting as required by Paragraph 12 then, sums equal to 125% of
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144
145 estimated costs to complete the applicable item(s) (but not in excess of applicable General Repair, WDO
146 Repair, and Permit Limits set forth above, if any) shall be escrowed at Closing. If actual costs of required repairs,
147 replacements, treatment or permitting exceed applicable escrowed amounts, Seller shall pay such actual costs
148 (but not in excess of applicable General Repair, WDO Repair, and Permit Limits set forth above). Any unused
149 portion of escrowed amount(s) shall be returned to Seller.
150 (b) COSTS TO BE PAID BY BUYER:
151 • Taxes and recording fees on notes and mortgages • Loan expenses
152 • Recording fees for deed and financing statements • Appraisal fees
153 • Owner’s Policy and Charges (if Paragraph 9(c)(ii) is checked) • Buyer’s Inspections
154 • Survey (and elevation certification, if required) • Buyer’s attorneys’ fees
155 • Lender’s title policy and endorsements • All property related insurance
156 • HOA/Condominium Association application/transfer fees • Owner’s Policy Premium (if Paragraph
157 • Municipal lien search (if Paragraph 9(c)(ii) is checked) 9 (c)(iii) is checked.)
158 • Other:
159 (c) TITLE EVIDENCE AND INSURANCE: At least ______ (if left blank, then 15, or if Paragraph 8(a) is checked,
160 then 5) days prior to Closing Date (“Title Evidence Deadline”), a title insurance commitment issued by a Florida
161 licensed title insurer, with legible copies of instruments listed as exceptions attached thereto (“Title
162 Commitment”) and, after Closing, an owner’s policy of title insurance (see STANDARD A for terms) shall be

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163 obtained and delivered to Buyer. If Seller has an owner’s policy of title insurance covering the Real Property, a
164 copy shall be furnished to Buyer and Closing Agent within 5 days after Effective Date. The owner’s title policy
165 premium, title search and closing services (collectively, “Owner’s Policy and Charges”) shall be paid, as set
166 forth below. The title insurance premium charges for the owner’s policy and any lender’s policy will be calculated
167 and allocated in accordance with Florida law, but may be reported differently on certain federally mandated
168 closing disclosures and other closing documents. For purposes of this Contract “municipal lien search” means a
169 search of records necessary for the owner’s policy of title insurance to be issued without exception for unrecorded
170 liens imposed pursuant to Chapters 159 or 170, F.S., in favor of any governmental body, authority or agency.
171 (CHECK ONE):
172 (i) Seller shall designate Closing Agent and pay for Owner’s Policy and Charges, and Buyer shall pay the
173 premium for Buyer’s lender’s policy and charges for closing services related to the lender’s policy,
174 endorsements and loan closing, which amounts shall be paid by Buyer to Closing Agent or such other
175 provider(s) as Buyer may select; or
176 (ii) Buyer shall designate Closing Agent and pay for Owner’s Policy and Charges and charges for closing
177 services related to Buyer’s lender’s policy, endorsements and loan closing; or
(iii) [MIAMI-DADE/BROWARD REGIONAL PROVISION]: Seller shall furnish a copy of a prior owner’s policy

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179 of title insurance or other evidence of title and pay fees for: (A) a continuation or update of such title evidence,
180 which is acceptable to Buyer’s title insurance underwriter for reissue of coverage; (B) tax search; and (C)
181 municipal lien search. Buyer shall obtain and pay for post-Closing continuation and premium for Buyer’s owner’s
182 policy, and if applicable, Buyer’s lender’s policy. Seller shall not be obligated to pay more than $_____________
183 (if left blank, then $200.00) for abstract continuation or title search ordered or performed by Closing Agent.
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(e) HOME WARRANTY: At Closing, PL
(d) SURVEY: On or before Title Evidence Deadline, Buyer may, at Buyer’s expense, have the Real Property
surveyed and certified by a registered Florida surveyor (“Survey”). If Seller has a survey covering the Real
Property, a copy shall be furnished to Buyer and Closing Agent within 5 days after Effective Date.
Buyer Seller N/A shall pay for a home warranty plan issued by
___________________________________________ at a cost not to exceed $_________________. A home
warranty plan provides for repair or replacement of many of a home’s mechanical systems and major built-in
appliances in the event of breakdown due to normal wear and tear during the agreement’s warranty period.
(f) SPECIAL ASSESSMENTS: At Closing, Seller shall pay: (i) the full amount of liens imposed by a public body
(“public body” does not include a Condominium or Homeowner’s Association) that are certified, confirmed and
ratified before Closing; and (ii) the amount of the public body’s most recent estimate or assessment for an
194 improvement which is substantially complete as of Effective Date, but that has not resulted in a lien being
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195 imposed on the Property before Closing. Buyer shall pay all other assessments. If special assessments may
196 be paid in installments (CHECK ONE):
197 (a) Seller shall pay installments due prior to Closing and Buyer shall pay installments due after Closing.
198 Installments prepaid or due for the year of Closing shall be prorated.
199 (b) Seller shall pay the assessment(s) in full prior to or at the time of Closing.
200 IF NEITHER BOX IS CHECKED, THEN OPTION (a) SHALL BE DEEMED SELECTED.
201 This Paragraph 9(f) shall not apply to a special benefit tax lien imposed by a community development district
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202 (CDD) pursuant to Chapter 190, F.S., which lien shall be prorated pursuant to STANDARD K.
203 DISCLOSURES
204 10. DISCLOSURES:
205 (a) RADON GAS: Radon is a naturally occurring radioactive gas that, when it is accumulated in a building in
206 sufficient quantities, may present health risks to persons who are exposed to it over time. Levels of radon that
207 exceed federal and state guidelines have been found in buildings in Florida. Additional information regarding
208 radon and radon testing may be obtained from your county health department.
209 (b) PERMITS DISCLOSURE: Except as may have been disclosed by Seller to Buyer in a written disclosure, Seller
210 does not know of any improvements made to the Property which were made without required permits or made
211 pursuant to permits which have not been properly closed. If Seller identifies permits which have not been
212 properly closed or improvements which were not permitted, then Seller shall promptly deliver to Buyer all plans,
213 written documentation or other information in Seller’s possession, knowledge, or control relating to
214 improvements to the Property which are the subject of such open permits or unpermitted improvements.
215 (c) MOLD: Mold is naturally occurring and may cause health risks or damage to property. If Buyer is concerned or
216 desires additional information regarding mold, Buyer should contact an appropriate professional.
217 (d) FLOOD ZONE; ELEVATION CERTIFICATION: Buyer is advised to verify by elevation certificate which flood
218 zone the Property is in, whether flood insurance is required by Buyer’s lender, and what restrictions apply to

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219 improving the Property and rebuilding in the event of casualty. If Property is in a “Special Flood Hazard Area”
220 or “Coastal Barrier Resources Act” designated area or otherwise protected area identified by the U.S. Fish and
221 Wildlife Service under the Coastal Barrier Resources Act and the lowest floor elevation for the building(s) and/or
222 flood insurance rating purposes is below minimum flood elevation or is ineligible for flood insurance coverage
223 through the National Flood Insurance Program or private flood insurance as defined in 42 U.S.C. §4012a, Buyer
224 may terminate this Contract by delivering written notice to Seller within _____ (if left blank, then 20) days after
225 Effective Date, and Buyer shall be refunded the Deposit thereby releasing Buyer and Seller from all further
226 obligations under this Contract, failing which Buyer accepts existing elevation of buildings and flood zone
227 designation of Property. The National Flood Insurance Program may assess additional fees or adjust premiums
228 for pre-Flood Insurance Rate Map (pre-FIRM) non-primary structures (residential structures in which the insured
229 or spouse does not reside for at least 50% of the year) and an elevation certificate may be required for actuarial
230 rating.
231 (e) ENERGY BROCHURE: Buyer acknowledges receipt of Florida Energy-Efficiency Rating Information Brochure
232 required by Section 553.996, F.S.
233 (f) LEAD-BASED PAINT: If Property includes pre-1978 residential housing, a lead-based paint disclosure is
mandatory.

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235 (g) HOMEOWNERS’ ASSOCIATION/COMMUNITY DISCLOSURE: BUYER SHOULD NOT EXECUTE THIS
236 CONTRACT UNTIL BUYER HAS RECEIVED AND READ THE HOMEOWNERS’
237 ASSOCIATION/COMMUNITY DISCLOSURE, IF APPLICABLE.
238 (h) PROPERTY TAX DISCLOSURE SUMMARY: BUYER SHOULD NOT RELY ON THE SELLER’S CURRENT
239 PROPERTY TAXES AS THE AMOUNT OF PROPERTY TAXES THAT THE BUYER MAY BE OBLIGATED TO
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(i)
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PAY IN THE YEAR SUBSEQUENT TO PURCHASE. A CHANGE OF OWNERSHIP OR PROPERTY
IMPROVEMENTS TRIGGERS REASSESSMENTS OF THE PROPERTY THAT COULD RESULT IN HIGHER
PROPERTY TAXES. IF YOU HAVE ANY QUESTIONS CONCERNING VALUATION, CONTACT THE
COUNTY PROPERTY APPRAISER’S OFFICE FOR INFORMATION.
FOREIGN INVESTMENT IN REAL PROPERTY TAX ACT (“FIRPTA”): Seller shall inform Buyer in writing if
Seller is a “foreign person” as defined by the Foreign Investment in Real Property Tax Act (“FIRPTA”). Buyer
and Seller shall comply with FIRPTA, which may require Seller to provide additional cash at Closing. If Seller
is not a “foreign person”, Seller can provide Buyer, at or prior to Closing, a certification of non-foreign status,
under penalties of perjury, to inform Buyer and Closing Agent that no withholding is required. See STANDARD
V for further information pertaining to FIRPTA. Buyer and Seller are advised to seek legal counsel and tax
250 advice regarding their respective rights, obligations, reporting and withholding requirements pursuant to
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251 FIRPTA.
252 (j) SELLER DISCLOSURE: Seller knows of no facts materially affecting the value of the Real Property which are
253 not readily observable and which have not been disclosed to Buyer. Except as otherwise disclosed in writing
254 Seller has received no written or verbal notice from any governmental entity or agency as to a currently
255 uncorrected building, environmental or safety code violation.
256 PROPERTY MAINTENANCE, CONDITION, INSPECTIONS AND EXAMINATIONS
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257 11. PROPERTY MAINTENANCE: Except for ordinary wear and tear and Casualty Loss, and those repairs,
258 replacements or treatments required to be made by this Contract, Seller shall maintain the Property, including, but
259 not limited to, lawn, shrubbery, and pool, in the condition existing as of Effective Date (“Maintenance Requirement”).
260 12. PROPERTY INSPECTION AND REPAIR:
261 (a) INSPECTION PERIOD: Buyer shall have ________ (if left blank, then 15) days after Effective Date (“Inspection
262 Period”), within which Buyer may, at Buyer’s expense, conduct “General”, “WDO”, and “Permit” Inspections
263 described below. If Buyer fails to timely deliver to Seller a written notice or report required by (b), (c), or (d)
264 below, then, except for Seller’s continuing Maintenance Requirement, Buyer shall have waived Seller’s
265 obligation(s) to repair, replace, treat or remedy the matters not inspected and timely reported. If this Contract
266 does not close, Buyer shall repair all damage to Property resulting from Buyer’s inspections, return Property to
267 its pre-inspection condition and provide Seller with paid receipts for all work done on Property upon its
268 completion.
269 (b) GENERAL PROPERTY INSPECTION AND REPAIR:
270 (i) General Inspection: Those items specified in Paragraph 12(b) (ii) below, which Seller is obligated to repair
271 or replace (“General Repair Items”) may be inspected (“General Inspection”) by a person who specializes in
272 and holds an occupational license (if required by law) to conduct home inspections or who holds a Florida
273 license to repair and maintain the items inspected (“Professional Inspector”). Buyer shall, within the Inspection
274 Period, inform Seller of any General Repair Items that are not in the condition required by (b)(ii) below by

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275 delivering to Seller a written notice and upon written request by Seller a copy of the portion of Professional
276 Inspector’s written report dealing with such items.
277 (ii) Property Condition: The following items shall be free of leaks, water damage or structural damage: ceiling,
278 roof (including fascia and soffits), exterior and interior walls, doors, windows, and foundation. The above items
279 together with pool, pool equipment, non-leased major appliances, heating, cooling, mechanical, electrical,
280 security, sprinkler, septic and plumbing systems and machinery, seawalls, and dockage, are, and shall be
281 maintained until Closing, in “Working Condition” (defined below). Torn screens (including pool and patio
282 screens), fogged windows, and missing roof tiles or shingles shall be repaired or replaced by Seller prior to
283 Closing. Seller is not required to repair or replace “Cosmetic Conditions” (defined below), unless the Cosmetic
284 Conditions resulted from a defect in an item Seller is obligated to repair or replace. “Working Condition” means
285 operating in the manner in which the item was designed to operate. “Cosmetic Conditions” means aesthetic
286 imperfections that do not affect Working Condition of the item, including, but not limited to: pitted marcite; tears,
287 worn spots and discoloration of floor coverings, wallpapers, or window treatments; nail holes, scrapes,
288 scratches, dents, chips or caulking in ceilings, walls, flooring, tile, fixtures, or mirrors; and minor cracks in walls,
289 floor tiles, windows, driveways, sidewalks, pool decks, and garage and patio floors. Cracked roof tiles, curling
or worn shingles, or limited roof life shall not be considered defects Seller must repair or replace, so long as

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291 there is no evidence of actual leaks, leakage or structural damage.
292 (iii) General Property Repairs: Seller is only obligated to make such general repairs as are necessary to bring
293 items into the condition specified in Paragraph 12(b) (ii) above. Seller shall within 10 days after receipt of Buyer’s
294 written notice or General Inspection report, either have the reported repairs to General Repair Items estimated
295 by an appropriately licensed person and a copy delivered to Buyer, or have a second inspection made by a
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Professional Inspector and provide a copy of such report and estimates of repairs to Buyer. If Buyer’s and
Seller’s inspection reports differ and the parties cannot resolve the differences, Buyer and Seller together shall
choose, and equally split the cost of, a third Professional Inspector, whose written report shall be binding on
the parties.
If cost to repair General Repair Items equals or is less than the General Repair Limit, Seller shall have repairs
made in accordance with Paragraph 12(f). If cost to repair General Repair Items exceeds the General Repair
Limit, then within 5 days after a party’s receipt of the last estimate: (A) Seller may elect to pay the excess by
delivering written notice to Buyer, or (B) Buyer may deliver written notice to Seller designating which repairs of
General Repair Items Seller shall make (at a total cost to Seller not exceeding the General Repair Limit) and
agreeing to accept the balance of General Repair Items in their “as is” condition, subject to Seller’s continuing
306 Maintenance Requirement. If neither party delivers such written notice to the other, then either party may
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307 terminate this Contract and Buyer shall be refunded the Deposit, thereby releasing Buyer and Seller from all
308 further obligations under this Contract.
309 (c) WOOD DESTROYING ORGANISM (“WDO”) INSPECTION AND REPAIR:
310 (i) WDO Inspection: The Property may be inspected by a Florida-licensed pest control business (“WDO
311 Inspector”) to determine the existence of past or present WDO infestation and damage caused by infestation
312 (“WDO Inspection”). Buyer shall, within the Inspection Period, deliver a copy of the WDO Inspector’s written
313 report to Seller if any evidence of WDO infestation or damage is found. “Wood Destroying Organism” (“WDO”)
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314 means arthropod or plant life, including termites, powder-post beetles, oldhouse borers and wood-decaying
315 fungi, that damages or infests seasoned wood in a structure, excluding fences.
316 (ii) WDO Repairs: If Seller previously treated the Property for the type of WDO found by Buyer’s WDO
317 Inspection, Seller does not have to retreat the Property if there is no visible live infestation, and Seller, at Seller’s
318 cost, transfers to Buyer at Closing a current full treatment warranty for the type of WDO found. Seller shall within
319 10 days after receipt of Buyer’s WDO Inspector’s report, have reported WDO damage estimated by an
320 appropriately licensed person, necessary corrective treatment, if any, estimated by a WDO Inspector, and a
321 copy delivered to Buyer. Seller shall have treatments and repairs made in accordance with Paragraph 12(f)
322 below up to the WDO Repair Limit. If cost to treat and repair the WDO infestations and damage to Property
323 exceeds the WDO Repair Limit, then within 5 days after receipt of Seller’s estimate, Buyer may deliver written
324 notice to Seller agreeing to pay the excess, or designating which WDO repairs Seller shall make (at a total cost
325 to Seller not exceeding the WDO Repair Limit), and accepting the balance of the Property in its “as is” condition
326 with regard to WDO infestation and damage, subject to Seller’s continuing Maintenance Requirement. If Buyer
327 does not deliver such written notice to Seller, then either party may terminate this Contract by written notice to
328 the other, and Buyer shall be refunded the Deposit, thereby releasing Buyer and Seller from all further
329 obligations under this Contract.

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330 (d) INSPECTION AND CLOSE-OUT OF BUILDING PERMITS:

331 (i) Permit Inspection: Buyer may have an inspection and examination of records and documents made to
332 determine whether there exist any open or expired building permits or unpermitted improvements to the
333 Property (“Permit Inspection”). Buyer shall, within the Inspection Period, deliver written notice to Seller of the
334 existence of any open or expired building permits or unpermitted improvements to the Property. If Buyer’s
335 inspection of the Property identifies permits which have not been properly closed or improvements which were
336 not permitted, then Seller shall promptly deliver to Buyer all plans, written documentation or other information
337 in Seller’s possession, knowledge, or control relating to improvements to the Property which are the subject of
338 such open permits or unpermitted improvements.
339 (ii) Close-Out of Building Permits: Seller shall, within 10 days after receipt of Buyer’s Permit Inspection notice,
340 have an estimate of costs to remedy Permit Inspection items prepared by an appropriately licensed person and
341 a copy delivered to Buyer. No later than 5 days prior to Closing Date, Seller shall, up to the Permit Limit, have
342 open and expired building permits identified by Buyer or known to Seller closed by the applicable governmental
343 entity, and obtain and close any required building permits for improvements to the Property. Prior to Closing
344 Date, Seller will provide Buyer with any written documentation that all open and expired building permits
identified by Buyer or known to Seller have been closed out and that Seller has obtained and closed required

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346 building permits for improvements to the Property. If final permit inspections cannot be performed due to delays
347 by the governmental entity, Closing Date shall be extended for up to 10 days to complete such final inspections,
348 failing which, either party may terminate this Contract, and Buyer shall be refunded the Deposit, thereby
349 releasing Buyer and Seller from all further obligations under this Contract.
350 If cost to close open or expired building permits or to remedy any permit violation of any governmental entity
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exceeds Permit Limit, then within 5 days after a party’s receipt of estimates of cost to remedy: (A) Seller may
elect to pay the excess by delivering written notice to Buyer; or (B) Buyer may deliver written notice to Seller
accepting the Property in its “as is” condition with regard to building permit status and agreeing to receive credit
from Seller at Closing in the amount of Permit Limit. If neither party delivers such written notice to the other,
then either party may terminate this Contract and Buyer shall be refunded the Deposit, thereby releasing Buyer
and Seller from all further obligations under this Contract.
(e) WALK-THROUGH INSPECTION/RE-INSPECTION: On the day prior to Closing Date, or on Closing Date prior
to time of Closing, as specified by Buyer, Buyer or Buyer’s representative may perform a walk-through (and
follow-up walk-through, if necessary) inspection of the Property solely to confirm that all items of Personal
Property are on the Property and to verify that Seller has maintained the Property as required by the
361 Maintenance Requirement, has made repairs and replacements required by this Contract, and has met all other
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362 contractual obligations.
363 (f) REPAIR STANDARDS; ASSIGNMENT OF REPAIR AND TREATMENT CONTRACTS AND WARRANTIES:
364 All repairs and replacements shall be completed in a good and workmanlike manner by an appropriately
365 licensed person, in accordance with all requirements of law, and shall consist of materials or items of quality,
366 value, capacity and performance comparable to, or better than, that existing as of the Effective Date. Except as
367 provided in Paragraph 12(c)(ii), at Buyer’s option and cost, Seller will, at Closing, assign all assignable repair,
368 treatment and maintenance contracts and warranties to Buyer.
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369 ESCROW AGENT AND BROKER

370 13. ESCROW AGENT: Any Closing Agent or Escrow Agent (collectively “Agent”) receiving the Deposit, other funds
371 and other items is authorized, and agrees by acceptance of them, to deposit them promptly, hold same in escrow
372 within the State of Florida and, subject to COLLECTION, disburse them in accordance with terms and conditions
373 of this Contract. Failure of funds to become COLLECTED shall not excuse Buyer’s performance. When conflicting
374 demands for the Deposit are received, or Agent has a good faith doubt as to entitlement to the Deposit, Agent may
375 take such actions permitted by this Paragraph 13, as Agent deems advisable. If in doubt as to Agent’s duties or
376 liabilities under this Contract, Agent may, at Agent’s option, continue to hold the subject matter of the escrow until
377 the parties agree to its disbursement or until a final judgment of a court of competent jurisdiction shall determine
378 the rights of the parties, or Agent may deposit same with the clerk of the circuit court having jurisdiction of the
379 dispute. An attorney who represents a party and also acts as Agent may represent such party in such action. Upon
380 notifying all parties concerned of such action, all liability on the part of Agent shall fully terminate, except to the
381 extent of accounting for any items previously delivered out of escrow. If a licensed real estate broker, Agent will
382 comply with provisions of Chapter 475, F.S., as amended and FREC rules to timely resolve escrow disputes through
383 mediation, arbitration, interpleader or an escrow disbursement order.
384 In any proceeding between Buyer and Seller wherein Agent is made a party because of acting as Agent hereunder,
385 or in any proceeding where Agent interpleads the subject matter of the escrow, Agent shall recover reasonable

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386 attorney’s fees and costs incurred, to be paid pursuant to court order out of the escrowed funds or equivalent. Agent
387 shall not be liable to any party or person for mis-delivery of any escrowed items, unless such mis-delivery is due to
388 Agent’s willful breach of this Contract or Agent’s gross negligence. This Paragraph 13 shall survive Closing or
389 termination of this Contract.
390 14. PROFESSIONAL ADVICE; BROKER LIABILITY: Broker advises Buyer and Seller to verify Property condition,
391 square footage, and all other facts and representations made pursuant to this Contract and to consult appropriate
392 professionals for legal, tax, environmental, and other specialized advice concerning matters affecting the Property
393 and the transaction contemplated by this Contract. Broker represents to Buyer that Broker does not reside on the
394 Property and that all representations (oral, written or otherwise) by Broker are based on Seller representations or
395 public records. BUYER AGREES TO RELY SOLELY ON SELLER, PROFESSIONAL INSPECTORS AND
396 GOVERNMENTAL AGENCIES FOR VERIFICATION OF PROPERTY CONDITION, SQUARE FOOTAGE AND
397 FACTS THAT MATERIALLY AFFECT PROPERTY VALUE AND NOT ON THE REPRESENTATIONS (ORAL,
398 WRITTEN OR OTHERWISE) OF BROKER. Buyer and Seller (individually, the “Indemnifying Party”) each
399 individually indemnifies, holds harmless, and releases Broker and Broker’s officers, directors, agents and
400 employees from all liability for loss or damage, including all costs and expenses, and reasonable attorney’s fees at
all levels, suffered or incurred by Broker and Broker’s officers, directors, agents and employees in connection with

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402 or arising from claims, demands or causes of action instituted by Buyer or Seller based on: (i) inaccuracy of
403 information provided by the Indemnifying Party or from public records; (ii) Indemnifying Party’s misstatement(s) or
404 failure to perform contractual obligations; (iii) Broker’s performance, at Indemnifying Party’s request, of any task
405 beyond the scope of services regulated by Chapter 475, F.S., as amended, including Broker’s referral,
406 recommendation or retention of any vendor for, or on behalf of, Indemnifying Party; (iv) products or services
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provided by any such vendor for, or on behalf of, Indemnifying Party; and (v) expenses incurred by any such vendor.
Buyer and Seller each assumes full responsibility for selecting and compensating their respective vendors and
paying their other costs under this Contract whether or not this transaction closes. This Paragraph 14 will not relieve
Broker of statutory obligations under Chapter 475, F.S., as amended. For purposes of this Paragraph 14, Broker
will be treated as a party to this Contract. This Paragraph 14 shall survive Closing or termination of this Contract.

15. DEFAULT:
DEFAULT AND DISPUTE RESOLUTION

(a) BUYER DEFAULT: If Buyer fails, neglects or refuses to perform Buyer’s obligations under this Contract,
including payment of the Deposit, within the time(s) specified, Seller may elect to recover and retain the Deposit
416 for the account of Seller as agreed upon liquidated damages, consideration for execution of this Contract, and
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417 in full settlement of any claims, whereupon Buyer and Seller shall be relieved from all further obligations under
418 this Contract, or Seller, at Seller’s option, may, pursuant to Paragraph 16, proceed in equity to enforce Seller’s
419 rights under this Contract. The portion of the Deposit, if any, paid to Listing Broker upon default by Buyer, shall
420 be split equally between Listing Broker and Cooperating Broker; provided however, Cooperating Broker’s share
421 shall not be greater than the commission amount Listing Broker had agreed to pay to Cooperating Broker.
422 (b) SELLER DEFAULT: If for any reason other than failure of Seller to make Seller’s title marketable after
423 reasonable diligent effort, Seller fails, neglects or refuses to perform Seller’s obligations under this Contract,
Buyer may elect to receive return of Buyer’s Deposit without thereby waiving any action for damages resulting
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424
425 from Seller’s breach, and, pursuant to Paragraph 16, may seek to recover such damages or seek specific
426 performance.
427 This Paragraph 15 shall survive Closing or termination of this Contract.
428 16. DISPUTE RESOLUTION: Unresolved controversies, claims and other matters in question between Buyer and
429 Seller arising out of, or relating to, this Contract or its breach, enforcement or interpretation (“Dispute”) will be settled
430 as follows:
431 (a) Buyer and Seller will have 10 days after the date conflicting demands for the Deposit are made to attempt to
432 resolve such Dispute, failing which, Buyer and Seller shall submit such Dispute to mediation under Paragraph
433 16(b).
434 (b) Buyer and Seller shall attempt to settle Disputes in an amicable manner through mediation pursuant to Florida
435 Rules for Certified and Court-Appointed Mediators and Chapter 44, F.S., as amended (the “Mediation Rules”).
436 The mediator must be certified or must have experience in the real estate industry. Injunctive relief may be
437 sought without first complying with this Paragraph 16(b). Disputes not settled pursuant to this Paragraph 16
438 may be resolved by instituting action in the appropriate court having jurisdiction of the matter. This Paragraph
439 16 shall survive Closing or termination of this Contract.
440 17. ATTORNEY’S FEES; COSTS: The parties will split equally any mediation fee incurred in any mediation permitted
441 by this Contract, and each party will pay their own costs, expenses and fees, including attorney’s fees, incurred in
442 conducting the mediation. In any litigation permitted by this Contract, the prevailing party shall be entitled to recover

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443 from the non-prevailing party costs and fees, including reasonable attorney’s fees, incurred in conducting the
444 litigation. This Paragraph 17 shall survive Closing or termination of this Contract.

STANDARDS FOR REAL ESTATE TRANSACTIONS (“STANDARDS”)

445 18. STANDARDS:

446 A. TITLE:
447 (i) TITLE EVIDENCE; RESTRICTIONS; EASEMENTS; LIMITATIONS: Within the time period provided in
448 Paragraph 9(c), the Title Commitment, with legible copies of instruments listed as exceptions attached thereto, shall
449 be issued and delivered to Buyer. The Title Commitment shall set forth those matters to be discharged by Seller at
450 or before Closing and shall provide that, upon recording of the deed to Buyer, an owner’s policy of title insurance
451 in the amount of the Purchase Price, shall be issued to Buyer insuring Buyer’s marketable title to the Real Property,
452 subject only to the following matters: (a) comprehensive land use plans, zoning, and other land use restrictions,
453 prohibitions and requirements imposed by governmental authority; (b) restrictions and matters appearing on the
454 Plat or otherwise common to the subdivision; (c) outstanding oil, gas and mineral rights of record without right of

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455 entry; (d) unplatted public utility easements of record (located contiguous to real property lines and not more than
456 10 feet in width as to rear or front lines and 7 1/2 feet in width as to side lines); (e) taxes for year of Closing and
457 subsequent years; and (f) assumed mortgages and purchase money mortgages, if any (if additional items, attach
458 addendum); provided, that, unless waived by Paragraph 12 (a), there exists at Closing no violation of the foregoing
459 and none prevent use of the Property for RESIDENTIAL PURPOSES. If there exists at Closing any violation of
460 items identified in (b) – (f) above, then the same shall be deemed a title defect. Marketable title shall be determined
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469
470
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according to applicable Title Standards adopted by authority of The Florida Bar and in accordance with law.
(ii) TITLE EXAMINATION: Buyer shall have 5 days after receipt of Title Commitment to examine it and notify Seller
in writing specifying defect(s), if any, that render title unmarketable. If Seller provides Title Commitment and it is
delivered to Buyer less than 5 days prior to Closing Date, Buyer may extend Closing for up to 5 days after date of
receipt to examine same in accordance with this STANDARD A. Seller shall have 30 days (“Cure Period”) after
receipt of Buyer’s notice to take reasonable diligent efforts to remove defects. If Buyer fails to so notify Seller, Buyer
shall be deemed to have accepted title as it then is. If Seller cures defects within Cure Period, Seller will deliver
written notice to Buyer (with proof of cure acceptable to Buyer and Buyer’s attorney) and the parties will close this
Contract on Closing Date (or if Closing Date has passed, within 10 days after Buyer’s receipt of Seller’s notice). If
Seller is unable to cure defects within Cure Period, then Buyer may, within 5 days after expiration of Cure Period,
471 deliver written notice to Seller: (a) extending Cure Period for a specified period not to exceed 120 days within which
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472 Seller shall continue to use reasonable diligent effort to remove or cure the defects (“Extended Cure Period”); or
473 (b) electing to accept title with existing defects and close this Contract on Closing Date (or if Closing Date has
474 passed, within the earlier of 10 days after end of Extended Cure Period or Buyer’s receipt of Seller’s notice), or (c)
475 electing to terminate this Contract and receive a refund of the Deposit, thereby releasing Buyer and Seller from all
476 further obligations under this Contract. If after reasonable diligent effort, Seller is unable to timely cure defects, and
477 Buyer does not waive the defects, this Contract shall terminate, and Buyer shall receive a refund of the Deposit,
478 thereby releasing Buyer and Seller from all further obligations under this Contract.
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479 B. SURVEY: If Survey discloses encroachments on the Real Property or that improvements located thereon
480 encroach on setback lines, easements, or lands of others, or violate any restrictions, covenants, or applicable
481 governmental regulations described in STANDARD A (i)(a), (b) or (d) above, Buyer shall deliver written notice of
482 such matters, together with a copy of Survey, to Seller within 5 days after Buyer’s receipt of Survey, but no later
483 than Closing. If Buyer timely delivers such notice and Survey to Seller, such matters identified in the notice and
484 Survey shall constitute a title defect, subject to cure obligations of STANDARD A above. If Seller has delivered a
485 prior survey, Seller shall, at Buyer’s request, execute an affidavit of “no change” to the Real Property since the
486 preparation of such prior survey, to the extent the affirmations therein are true and correct.
487 C. INGRESS AND EGRESS: Seller represents that there is ingress and egress to the Real Property and title to
488 the Real Property is insurable in accordance with STANDARD A without exception for lack of legal right of access.
489 D. LEASE INFORMATION: Seller shall, at least 10 days prior to Closing, furnish to Buyer estoppel letters from
490 tenant(s)/occupant(s) specifying nature and duration of occupancy, rental rates, advanced rent and security
491 deposits paid by tenant(s) or occupant(s)(“Estoppel Letter(s)”). If Seller is unable to obtain such Estoppel Letter(s),
492 the same information shall be furnished by Seller to Buyer within that time period in the form of a Seller’s affidavit,
493 and Buyer may thereafter contact tenant(s) or occupant(s) to confirm such information. If Estoppel Letter(s) or
494 Seller’s affidavit, if any, differ materially from Seller’s representations and lease(s) provided pursuant to Paragraph
495 6, or if tenant(s)/occupant(s) fail or refuse to confirm Seller’s affidavit, Buyer may deliver written notice to Seller
496 within 5 days after receipt of such information, but no later than 5 days prior to Closing Date, terminating this

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STANDARDS FOR REAL ESTATE TRANSACTIONS (“STANDARDS”) CONTINUED

497 Contract and receive a refund of the Deposit, thereby releasing Buyer and Seller from all further obligations under
498 this Contract. Seller shall, at Closing, deliver and assign all leases to Buyer who shall assume Seller’s obligations
499 thereunder.
500 E. LIENS: Seller shall furnish to Buyer at Closing an affidavit attesting (i) to the absence of any financing
501 statement, claims of lien or potential lienors known to Seller and (ii) that there have been no improvements or
502 repairs to the Real Property for 90 days immediately preceding Closing Date. If the Real Property has been
503 improved or repaired within that time, Seller shall deliver releases or waivers of construction liens executed by all
504 general contractors, subcontractors, suppliers and materialmen in addition to Seller’s lien affidavit setting forth
505 names of all such general contractors, subcontractors, suppliers and materialmen, further affirming that all charges
506 for improvements or repairs which could serve as a basis for a construction lien or a claim for damages have been
507 paid or will be paid at Closing.
508 F. TIME: Calendar days shall be used in computing time periods. Time is of the essence in this Contract. Other
509 than time for acceptance and Effective Date as set forth in Paragraph 3, any time periods provided for or dates
510 specified in this Contract, whether preprinted, handwritten, typewritten or inserted herein, which shall end or occur
511 on a Saturday, Sunday, or a national legal holiday (see 5 U.S.C. 6103) shall extend to 5:00 p.m. (where the Property
512 is located) of the next business day.

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513 G. FORCE MAJEURE: Buyer or Seller shall not be required to perform any obligation under this Contract or be
514 liable to each other for damages so long as performance or non-performance of the obligation, or the availability of
515 services, insurance or required approvals essential to Closing, is disrupted, delayed, caused or prevented by Force
516 Majeure. “Force Majeure” means: hurricanes, floods, extreme weather, earthquakes, fire, or other acts of God,
517 unusual transportation delays, or wars, insurrections, or acts of terrorism, which, by exercise of reasonable diligent
effort, the non-performing party is unable in whole or in part to prevent or overcome. All time periods, including
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Closing Date, will be extended a reasonable time up to 7 days after the Force Majeure no longer prevents
performance under this Contract, provided, however, if such Force Majeure continues to prevent performance under
this Contract more than 30 days beyond Closing Date, then either party may terminate this Contract by delivering
written notice to the other and the Deposit shall be refunded to Buyer, thereby releasing Buyer and Seller from all
further obligations under this Contract.
H. CONVEYANCE: Seller shall convey marketable title to the Real Property by statutory warranty, trustee’s,
personal representative’s, or guardian’s deed, as appropriate to the status of Seller, subject only to matters
described in STANDARD A and those accepted by Buyer. Personal Property shall, at request of Buyer, be
transferred by absolute bill of sale with warranty of title, subject only to such matters as may be provided for in this
528 Contract.
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529 I. CLOSING LOCATION; DOCUMENTS; AND PROCEDURE:
530 (i) LOCATION: Closing will be conducted by the attorney or other closing agent (“Closing Agent”) designated by
531 the party paying for the owner’s policy of title insurance and will take place in the county where the Real Property
532 is located at the office of the Closing Agent, or at such other location agreed to by the parties. If there is no title
533 insurance, Seller will designate Closing Agent. Closing may be conducted by mail, overnight courier, or electronic
534 means.
535 (ii) CLOSING DOCUMENTS: Seller shall, at or prior to Closing, execute and deliver, as applicable, deed, bill of
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536 sale, certificate(s) of title or other documents necessary to transfer title to the Property, construction lien affidavit(s),
537 owner’s possession and no lien affidavit(s), and assignment(s) of leases. Seller shall provide Buyer with paid
538 receipts for all work done on the Property pursuant to this Contract. Buyer shall furnish and pay for, as applicable,
539 the survey, flood elevation certification, and documents required by Buyer’s lender.
540 (iii) FinCEN GTO NOTICE. If Closing Agent is required to comply with the U.S. Treasury Department’s
541 Financial Crimes Enforcement Network (“FinCEN”) Geographic Targeting Orders (“GTOs”), then Buyer
542 shall provide Closing Agent with the information related to Buyer and the transaction contemplated by this
543 Contract that is required to complete IRS Form 8300, and Buyer consents to Closing Agent’s collection and
544 report of said information to IRS.
545 (iv) PROCEDURE: The deed shall be recorded upon COLLECTION of all closing funds. If the Title Commitment
546 provides insurance against adverse matters pursuant to Section 627.7841, F.S., as amended, the escrow closing
547 procedure required by STANDARD J shall be waived, and Closing Agent shall, subject to COLLECTION of all
548 closing funds, disburse at Closing the brokerage fees to Broker and the net sale proceeds to Seller.
549 J. ESCROW CLOSING PROCEDURE: If Title Commitment issued pursuant to Paragraph 9(c) does not provide
550 for insurance against adverse matters as permitted under Section 627.7841, F.S., as amended, the following
551 escrow and closing procedures shall apply: (1) all Closing proceeds shall be held in escrow by the Closing Agent
552 for a period of not more than 10 days after Closing; (2) if Seller’s title is rendered unmarketable, through no fault of
553 Buyer, Buyer shall, within the 10 day period, notify Seller in writing of the defect and Seller shall have 30 days from
554 date of receipt of such notification to cure the defect; (3) if Seller fails to timely cure the defect, the Deposit and all

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STANDARDS FOR REAL ESTATE TRANSACTIONS (“STANDARDS”) CONTINUED

555 Closing funds paid by Buyer shall, within 5 days after written demand by Buyer, be refunded to Buyer and,
556 simultaneously with such repayment, Buyer shall return the Personal Property, vacate the Real Property and re-
557 convey the Property to Seller by special warranty deed and bill of sale; and (4) if Buyer fails to make timely demand
558 for refund of the Deposit, Buyer shall take title as is, waiving all rights against Seller as to any intervening defect
559 except as may be available to Buyer by virtue of warranties contained in the deed or bill of sale.
560 K. PRORATIONS; CREDITS: The following recurring items will be made current (if applicable) and prorated as of
561 the day prior to Closing Date, or date of occupancy if occupancy occurs before Closing Date: real estate taxes
562 (including special benefit tax assessments imposed by a CDD), interest, bonds, association fees, insurance, rents
563 and other expenses of Property. Buyer shall have option of taking over existing policies of insurance, if assumable,
564 in which event premiums shall be prorated. Cash at Closing shall be increased or decreased as may be required
565 by prorations to be made through day prior to Closing. Advance rent and security deposits, if any, will be credited
566 to Buyer. Escrow deposits held by Seller’s mortgagee will be paid to Seller. Taxes shall be prorated based on
567 current year’s tax. If Closing occurs on a date when current year’s millage is not fixed but current year’s assessment
568 is available, taxes will be prorated based upon such assessment and prior year’s millage. If current year’s
569 assessment is not available, then taxes will be prorated on prior year’s tax. If there are completed improvements
570 on the Real Property by January 1st of year of Closing, which improvements were not in existence on January 1st

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571 of prior year, then taxes shall be prorated based upon prior year’s millage and at an equitable assessment to be
572 agreed upon between the parties, failing which, request shall be made to the County Property Appraiser for an
573 informal assessment taking into account available exemptions. In all cases, due allowance shall be made for the
574 maximum allowable discounts and applicable homestead and other exemptions. A tax proration based on an
575 estimate shall, at either party’s request, be readjusted upon receipt of current year’s tax bill. This STANDARD K
shall survive Closing.
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L. ACCESS TO PROPERTY TO CONDUCT APPRAISALS, INSPECTIONS, AND WALK-THROUGH: Seller
shall, upon reasonable notice, provide utilities service and access to Property for appraisals and inspections,
including a walk-through (or follow-up walk-through if necessary) prior to Closing.
M. RISK OF LOSS: If, after Effective Date, but before Closing, Property is damaged by fire or other casualty
(“Casualty Loss”) and cost of restoration (which shall include cost of pruning or removing damaged trees) does not
exceed 1.5% of Purchase Price, cost of restoration shall be an obligation of Seller and Closing shall proceed
pursuant to terms of this Contract. If restoration is not completed as of Closing, a sum equal to 125% of estimated
cost to complete restoration (not to exceed 1.5% of Purchase Price) will be escrowed at Closing. If actual cost of
restoration exceeds escrowed amount, Seller shall pay such actual costs (but, not in excess of 1.5% of Purchase
586 Price). Any unused portion of escrowed amount shall be returned to Seller. If cost of restoration exceeds 1.5% of
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587 Purchase Price, Buyer shall elect to either take Property “as is” together with the 1.5%, or receive a refund of the
588 Deposit thereby releasing Buyer and Seller from all further obligations under this Contract. Seller’s sole obligation
589 with respect to tree damage by casualty or other natural occurrence shall be cost of pruning or removal.
590 N. 1031 EXCHANGE: If either Seller or Buyer wish to enter into a like-kind exchange (either simultaneously with
591 Closing or deferred) under Section 1031 of the Internal Revenue Code (“Exchange”), the other party shall cooperate
592 in all reasonable respects to effectuate the Exchange, including execution of documents; provided, however,
593 cooperating party shall incur no liability or expense related to the Exchange, and Closing shall not be contingent
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594 upon, nor extended or delayed by, such Exchange.

595 O. CONTRACT NOT RECORDABLE; PERSONS BOUND; NOTICE; DELIVERY; COPIES; CONTRACT
596 EXECUTION: Neither this Contract nor any notice of it shall be recorded in any public records. This Contract shall
597 be binding on, and inure to the benefit of, the parties and their respective heirs or successors in interest. Whenever
598 the context permits, singular shall include plural and one gender shall include all. Notice and delivery given by or to
599 the attorney or broker (including such broker’s real estate licensee) representing any party shall be as effective as
600 if given by or to that party. All notices must be in writing and may be made by mail, personal delivery or electronic
601 (including “pdf”) media. A facsimile or electronic (including “pdf”) copy of this Contract and any signatures hereon
602 shall be considered for all purposes as an original. This Contract may be executed by use of electronic signatures,
603 as determined by Florida’s Electronic Signature Act and other applicable laws.
604 P. INTEGRATION; MODIFICATION: This Contract contains the full and complete understanding and agreement
605 of Buyer and Seller with respect to the transaction contemplated by this Contract and no prior agreements or
606 representations shall be binding upon Buyer or Seller unless included in this Contract. No modification to or change
607 in this Contract shall be valid or binding upon Buyer or Seller unless in writing and executed by the parties intended
608 to be bound by it.
609 Q. WAIVER: Failure of Buyer or Seller to insist on compliance with, or strict performance of, any provision of this
610 Contract, or to take advantage of any right under this Contract, shall not constitute a waiver of other provisions or
611 rights.

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612 R. RIDERS; ADDENDA; TYPEWRITTEN OR HANDWRITTEN PROVISIONS: Riders, addenda, and typewritten
613 or handwritten provisions shall control all printed provisions of this Contract in conflict with them.
614 S. COLLECTION or COLLECTED: “COLLECTION” or “COLLECTED” means any checks tendered or
615 received, including Deposits, have become actually and finally collected and deposited in the account of
616 Escrow Agent or Closing Agent. Closing and disbursement of funds and delivery of closing documents
617 may be delayed by Closing Agent until such amounts have been COLLECTED in Closing Agent’s accounts.
618 T. RESERVED.
619 U. APPLICABLE LAW AND VENUE: This Contract shall be construed in accordance with the laws of the State
620 of Florida and venue for resolution of all disputes, whether by mediation, arbitration or litigation, shall lie in the
621 county where the Real Property is located.
622 V. FIRPTA TAX WITHHOLDING: If a seller of U.S. real property is a “foreign person” as defined by FIRPTA,
623 Section 1445 of the Internal Revenue Code (“Code”) requires the buyer of the real property to withhold up to 15%
624 of the amount realized by the seller on the transfer and remit the withheld amount to the Internal Revenue Service
625 (IRS) unless an exemption to the required withholding applies or the seller has obtained a Withholding Certificate
626 from the IRS authorizing a reduced amount of withholding.
627 (i) No withholding is required under Section 1445 of the Code if the Seller is not a “foreign person”. Seller can

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628 provide proof of non-foreign status to Buyer by delivery of written certification signed under penalties of perjury,
629 stating that Seller is not a foreign person and containing Seller’s name, U.S. taxpayer identification number and
630 home address (or office address, in the case of an entity), as provided for in 26 CFR 1.1445-2(b). Otherwise, Buyer
631 shall withhold the applicable percentage of the amount realized by Seller on the transfer and timely remit said funds
632 to the IRS.
(ii) If Seller is a foreign person and has received a Withholding Certificate from the IRS which provides for reduced
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639
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642
PL
or eliminated withholding in this transaction and provides same to Buyer by Closing, then Buyer shall withhold the
reduced sum required, if any, and timely remit said funds to the IRS.
(iii) If prior to Closing Seller has submitted a completed application to the IRS for a Withholding Certificate and has
provided to Buyer the notice required by 26 CFR 1.1445-1(c) (2)(i)(B) but no Withholding Certificate has been
received as of Closing, Buyer shall, at Closing, withhold the applicable percentage of the amount realized by Seller
on the transfer and, at Buyer’s option, either (a) timely remit the withheld funds to the IRS or (b) place the funds in
escrow, at Seller’s expense, with an escrow agent selected by Buyer and pursuant to terms negotiated by the
parties, to be subsequently disbursed in accordance with the Withholding Certificate issued by the IRS or remitted
directly to the IRS if the Seller’s application is rejected or upon terms set forth in the escrow agreement.
643 (iv) In the event the net proceeds due Seller are not sufficient to meet the withholding requirement(s) in this
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644 transaction, Seller shall deliver to Buyer, at Closing, the additional COLLECTED funds necessary to satisfy the
645 applicable requirement and thereafter Buyer shall timely remit said funds to the IRS or escrow the funds for
646 disbursement in accordance with the final determination of the IRS, as applicable.
647 (v) Upon remitting funds to the IRS pursuant to this STANDARD, Buyer shall provide Seller copies of IRS Forms
648 8288 and 8288-A, as filed.
ADDENDA AND ADDITIONAL TERMS
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649 19. ADDENDA: The following additional terms are included in the attached addenda or riders and incorporated into this
650 Contract (Check if applicable):
651 A. Condominium Rider K. “As Is” T. Pre-Closing Occupancy
B. Homeowners’ Assn. L. Right to Inspect/ Cancel U. Post-Closing Occupancy
C. Seller Financing M. Defective Drywall V. Sale of Buyer’s Property
D. Mortgage Assumption N. Coastal Construction Control W. Back-up Contract
E. FHA/VA Financing Line X. Kick-out Clause
F. Appraisal Contingency O. Insulation Disclosure Y. Seller’s Attorney Approval
G. Short Sale P. Lead Paint Disclosure (Pre-1978) Z. Buyer’s Attorney Approval
H. Homeowners’/Flood Ins Q. Housing for Older Persons AA. Licensee Property Interest
I. RESERVED R. Rezoning BB. Binding Arbitration
J. Interest-Bearing Acct. S. Lease Purchase/ Lease Option CC. Miami-Dade County
Special Taxing District
Disclosure
Other:____________________
____________________
______________________________

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652 20. ADDITIONAL TERMS:

653 __________________________________________________________________________________________
654 __________________________________________________________________________________________
655 __________________________________________________________________________________________
656 __________________________________________________________________________________________
657 __________________________________________________________________________________________
658 __________________________________________________________________________________________
659 __________________________________________________________________________________________
660 __________________________________________________________________________________________
661 __________________________________________________________________________________________
662 __________________________________________________________________________________________
663 __________________________________________________________________________________________
664 __________________________________________________________________________________________
665 __________________________________________________________________________________________
666 __________________________________________________________________________________________
667 __________________________________________________________________________________________

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668 __________________________________________________________________________________________

669 COUNTER-OFFER/REJECTION
670 Seller counters Buyer’s offer (to accept the counter-offer, Buyer must sign or initial the counter-offered terms and
671 deliver a copy of the acceptance to Seller).
672

673
674

675

676
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678
Seller rejects Buyer’s offer.

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THIS IS INTENDED TO BE A LEGALLY BINDING CONTRACT. IF NOT FULLY UNDERSTOOD, SEEK THE ADVICE
OF AN ATTORNEY PRIOR TO SIGNING.

THIS FORM HAS BEEN APPROVED BY THE FLORIDA REALTORS AND THE FLORIDA BAR.

Approval of this form by the Florida Realtors and The Florida Bar does not constitute an opinion that any of the terms
and conditions in this Contract should be accepted by the parties in a particular transaction. Terms and conditions
should be negotiated based upon the respective interests, objectives and bargaining positions of all interested persons.
AN ASTERISK (*) FOLLOWING A LINE NUMBER IN THE MARGIN INDICATES THE LINE CONTAINS A BLANK TO
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679
680 BE COMPLETED.

681 Buyer: Date:

682 Buyer: Date:

683 Seller: Date:

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684 Seller: Date:

685 Buyer’s address for purposes of notice Seller’s address for purposes of notice
686 ___________________________________________ ____________________________________________
687 ___________________________________________ ____________________________________________
688 ___________________________________________ ____________________________________________

689 BROKER: Listing and Cooperating Brokers, if any, named below (collectively, “Broker”), are the only Brokers entitled
690 to compensation in connection with this Contract. Instruction to Closing Agent: Seller and Buyer direct Closing Agent to
691 disburse at Closing the full amount of the brokerage fees as specified in separate brokerage agreements with the parties
692 and cooperative agreements between the Brokers, except to the extent Broker has retained such fees from the
693 escrowed funds. This Contract shall not modify any MLS or other offer of compensation made by Seller or Listing Broker
694 to Cooperating Brokers.

695 ___________________________________________ __________________________________________

696 Cooperating Sales Associate, if any Listing Sales Associate
697 ___________________________________________ __________________________________________
698 Cooperating Broker, if any Listing Broker

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..
Showing Agreement

1. PARTIES: __________________________________ ("Buyer")

agrees that if, between ________, ___ and 11 :59 p.m. on _______, ___, Buyer becomes interested in
negotiating the purchase, option, exchange, lease or other acquisition of any of the properties listed below, Buyer will utilize the
professional services of ___________________________________ ("Broker").
2. PROPERTY: Broker introduced Buyer to the following properties: _______________________

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3. BROKER'S OBLIGATIONS:
(a) Broker Assistance. If Buyer wants to negotiate on any of the above properties, Broker will:
• use Broker's professional knowledge and skills;
• help Buyer determine Buyer's financial capability and financing options;
• assist Buyer in monitoring deadlines and closing any resulting transaction;and

PL
• cooperate with real estate licensees working with the seller, if any, to effect a transaction.
(b) Other Buyers. Buyer understands that Broker may work with other prospective buyers who want to acquire the same
property as Buyer. If Broker submits offers by competing buyers, Broker will notify Buyer that a competing offer has been
made, but will not disclose any of the offer's material terms or conditions. Buyer agrees that Broker may make competing
buyers aware of the existence of any offer Buyer makes, so long as Broker does not reveal any material terms or conditions of
the offer without Buyer's prior written consent.
(c) Fair Housing. Broker adheres to the principles expressed in the Fair Housing Act and will not participate in any act that
unlawfully discriminates on the basis of race, color, religion, sex, handicap, familial status, country of national origin or any
other category protected under federal, state or local law.
(d) Service Providers. Broker does not warrant or guarantee products or services provided by any third party whom Broker,
at Buyer's request, refers or recommends to Buyer in connection with property acquisition.
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4. BUYER'S OBLIGATIONS: Buyer agrees to cooperate with Broker in accomplishing the objectives of this Agreement, including:
• immediately contacting Broker upon deciding to negotiate for the acquisition of one or more of the above-listed properties;
• informing any other real estate licensee with whom Buyer has contact that Buyer is working exclusively with Broker with
regard to the properties listed above;
• providing Broker with accurate personal and financial information requested by Broker in connection with ensuring
Buyer's ability to acquire property;
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• paying Broker's compensation and, if Broker is held responsible for Buyer's wrongful acts or default on any agreement,
then paying all of Broker's expenses; and
• consulting appropriate professionals for legal, tax, environmental, engineering, foreign reporting requirements and other
specialized advice.
Buyer authorizes Broker to run a credit check to verify Buyer's credit information.

5. COMPENSATION: Broker's compensation of ____% of the purchase price or $_________ is earned when,
during the term of this agreement, Buyer or any person acting for or on behalf of Buyer contracts to acquire an interest in any of
the properties listed above. Broker will seek compensation from the listing office; however, if there is no listing office or no
compensation is offered, Buyer will ask the seller, as part of the offer, to pay Broker's compensation. If the seller and listing
office, if any, refuse to pay Broker's compensation, Buyer will pay Broker's compensation upon Broker's demand.

6. DISPUTE RESOLUTION: Any unresolveable dispute between Buyer and Broker will be mediated. If a settlement is not
reached in mediation, the matter will be submitted to binding arbitration in accordance with the rules of the American
Arbitration Association or other mutually agreeable arbitrator.

7. ACKNOWLEDGMENT; MODIFICATIONS: Buyer has read this Agreement and understands its contents. This Agreement
cannot be changed except by written agreement signed by both parties.
Buyer (_) (_) and Broker/Sales Associate (_) (_) acknowledge receipt of a copy of this page, which is Page 1 of 2 Pages.
SA-3x Rev. 10/06 Cl 2006 Florida Realtors• All Rights Reserved
Seriat#: 091533-300151-0278919
form impli it

Florida Real Estate Sales Associate Post-License Course Reicon Publishing, LLC
 Real Estate Forms 397

E
PL
M
SA

Reicon Publishing, LLC Florida Real Estate Sales Associate Post-License Course
398 Real Estate Forms

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Florida Real Estate Sales Associate Post-License Course Reicon Publishing, LLC
 ANSWER KEY
Chapter 1 Review 13. end of the business 14. d 12. bi-weekly, 13
day 15. a 13. total obligations ratio
1. farming 14. one registered 41
2. (1) four, condominium employer Chapter 4 Review 14. underwriting
units, (2) four, (3) ten, 15. single agency, no 15. gift letter
(4) four, (5) four brokerage 1. number, consistency,
3. Industrial sales system Chapter 5 Practice Exam
4. Business brokerage Chapter 2 Practice Exam 2. database, contact
5. Counseling management software 1. b
6. National Association 1. a 3. geographic farm area 2. c
of REALTORS® 2. d 4. Push, Pull 3. c
(NAR), REALTORS® 3. b 5. Tombstone, Direct 4. d
7. Florida Association of 4. c response 5. c
REALTORS® (FAR), 5. a 6. property, name, 6. b
Florida REALTORS® 6. c address, contact 7. d
8. NAR, FAR, MLS 7. b 7. experience, education, 8. c
9. NAR Code of Ethics 8. c professional affiliations 9. b
10. clients, customers, 9. a 8. motivation, 10. a
public, other real 10. c expectations 11. b
estate licensees 11. b 9. listing contract, 12. d
11. designations, 12. b automatic renewal 13. a
certifications 13. d 10. open, unilateral 14. c
12. valuation, marketing, 14. d 11. exclusive 15. a
property transfer 15. c 12. exclusive right of sale
13. market statistics, 13. net Chapter 6 Review
available inventory, Chapter 3 Review 14. communication
distressed properties 15. AIDA, attention, 1. listing
14. Multiple Listing 1. Uniform Standards of interest, desire, action 2. sphere, influence,
Service (MLS) Professional Appraisal farm area, social
15. income, operating Practice (USPAP), Chapter 4 Practice Exam media, open house
expenses appraisers, 475 3. property disclosure
2. Market value 1. c statement
Chapter 1 Practice Exam 3. Investment value 2. c 4. murder, suicide
4. Liquidation value, 3. a 5. Statute of Frauds
1. b failing business 4. b 6. Statute of Limitations,
2. c 5. anticipation, income- 5. d five, four
3. b producing or 6. d 7. offeror, offeree,
4. b investment 7. a communicated
5. c 6. contribution, 8. b 8. competent, 18
6. b increases, decreases 9. d 9. Property Description,
7. a 7. substitution 10. c personal property
8. a 8. highest and best use 11. c 10. initial
9. d 9. cost-depreciation 12. a 11. Force Majeure
10. d 10. comparable sales, 13. c 12. “As Is”, disclose
11. c substitution 14. d material defects
12. d 11. subject property, 15. b 13. option, optionee,
13. c comparables optionor, unilateral,
14. c 12. neighborhood, home Chapter 5 Review valuable consideration
15. b site, property features 14. abandonment
13. comparable, subject 1. primary mortgage 15. five, two
Chapter 2 Review property market
14. add, subtract 2. origination Chapter 6 Practice Exam
1. 455 15. broker price opinion 3. secondary mortgage
2. 475 (BPO), real estate market, Ginnie Mae, 1. c
3. 61J2 owned (REO) Fannie Mae, Freddie 2. a
4. FIRPTA, foreign Mac 3. b
investor Chapter 3 Practice Exam 4. origination, Discount, 4. d
5. NAR Code of Ethics 1 5. c
6. 475 1. c 5. effective yield, 1/8 6. a
7. reprimand, fine, 2. b 6. Amortization, 7. b
probation, suspension, 3. b amortized, fully 8. a
revocation or denial 4. d amortizing 9. c
8. post-license, 45 5. c 7. interest-only, balloon 10. b
9. 14 6. a 8. graduated payment 11. d
10. ten days 7. c mortgage (GPM), 12. c
11. convicted, found 8. c negative amortization 13. a
guilty, entered a plea 9. b 9. conventional, 15, 30 14. b
of nolo contendere, 10. d 10. private mortgage 15. c
guilty 11. a insurance (PMI)
12. fraudulent, false, 12. b 11. principal, interest,
deceptive, misleading 13. d taxes, insurance, PITI

Reicon Publishing, LLC 399

400 Answer Key
Chapter 7 Review Chapter 8 Practice Exam Chapter 10 Review 11. subscription
agreement
1. interior, T, flag, flag, 1. a 1. forbearance, 12. interval ownership,
key 2. d moratorium right to use
2. substructure 3. d 2. restructuring 13. (1) 10-day, (2) leisure-
3. crawl space, slab, 4. b 3. subject to, time activity,
concrete, steel 5. c nonrecourse investment
4. Slab-on-grade, footers 6. b 4. deed in lieu of 14. compensation, ten,
5. superstructure 7. d foreclosure, warranty, $100,000
6. Single-hung, double- 8. d quitclaim 15. (1) funds, (2) budgets,
hung, Jalousie 9. c 5. voluntary conveyance, financial, (3) notice of
7. R-value, higher 10. c foreclosure meetings, (4)
8. Loose-fill, Reflective, 11. d 6. deficiency balance, maintenance
rigid, Foam 12. c legal counsel,
9. PVC 13. c bankruptcy Chapter 11 Practice Exam
10. temperature and 14. b 7. short sale
pressure relief valve 15. d 8. (1) for sale, (2) 1. c
11. BTU’s multiple payments, 2. a
12. refrigerant, Chapter 9 Review credit rating, (3) 3. d
evaporator, financial hardship 4. b
condenser, drain line 1. closing responsibilities 9. financial hardship, 5. b
13. heat pump, reversing checklist, MLS, loan changed financial 6. d
valve, heat strip application, circumstances 7. c
14. ground fault inspections, 10. foreclosure, notice of 8. d
interrupters (GFIs) contingencies default, catch up on 9. a
15. building codes 2. structural, exterior, payments 10. b
roof, attic, plumbing, 11. lis pendens, notice of 11. c
Chapter 7 Practice Exam electrical, appliances, sale, certificate of sale 12. a
garage 12. courthouse 13. a
1. a 3. title report, survey, 13. government 14. c
2. c inspection, public 14. private 15. b
3. a records 15. open outcry
4. c 4. title company, attorney Chapter 12 Review
5. b 5. broker, next, third, Chapter 10 Practice Exam
6. b original receipt 1. risk, liquidity, leverage,
7. a 6. title insurance 1. a Risk, rate of return
8. a 7. property, flood, title 2. c 2. liquid, illiquid, liquid,
9. d 8. structure, personal, 3. d illiquid
10. c living expenses, 4. b 3. Leverage, loan-to-
11. c liability 5. b value (LTV)
12. b 9. borrower 6. c 4. (1) Office buildings, (2)
13. a 10. deed, title insurance, 7. a Residential, keep, flip,
14. b survey, mortgage 8. a (3) Commercial, (4)
15. d information, listing 9. b Industrial
agreement, contract, 10. d 5. Due diligence,
Chapter 8 Review fees, commission 11. c environmental,
11. cleared, earnest 12. a government,
1. race, color, religion, money, loan 13. d community
sex, national origin, 12. Summaries of 14. b 6. expenses, gross
handicap, familial Transactions 15. c income
status 13. Single, Double 7. fixed, variable, reserve
2. race 14. $72.58, buyer, seller Chapter 11 Review for replacements
3. reasonable, tenant’s 15. RESPA, three, lender 8. Cash flow, positive
4. Steering, limiting 1. (1) 718; (2) 719; (3) cash flow
choices Chapter 9 Practice Exam 721; (4) 720 9. before-tax cash flow
5. Blockbusting, panic 2. condominium, (BRCF), after-tax cash
selling (or panic 1. c common elements flow (ATCF)
peddling) 2. d 3. Articles of 10. marginal tax bracket
6. Redlining 3. c Incorporation, bylaws 11. taxable income, less
7. Fair Housing (or HUD) 4. d 4. offering plan 12. Basis, cost basis,
Poster, broker 5. a 5. letter of intent, adjusted basis,
8. racial, (1) real estate 6. d purchase agreement beginning (or initial)
professional, (2) 7. d 6. form of ownership, basis
advertising 8. b condominium, 13. adjusted basis,
9. Americans with 9. c cooperative (or co-op), realized, unrealized,
Disabilities Act (ADA), 10. b shares of stock Capital losses
open to the public 11. a 7. operating expenses 14. Depreciation, straight-
10. readily available, 12. c 8. (1) real estate tax, (2) line basis, 27.5, 39
multifamily 13. b interest payment, (3) 15. Section 1031, defer
11. conciliation 14. c interest payment,
12. $16,000 15. d foreclosure
13. 760, 475 9. statement of financial
14. perceived position
15. your employing broker 10. board meeting
minutes

Florida Real Estate Sales Associate Post-License Course Reicon Publishing, LLC
Answer Key 401
Chapter 12 Practice Exam Chapter 13 Review Chapter 13 Practice Exam
1. c 1. real estate brokerage 1. d
2. a partnership, jointly, 2. a
3. a severally, one, Sales 3. b
4. c associates, broker 4. d
5. d associates 5. a
6. b 2. franchise 6. c
7. b 3. cost savings 7. c
8. c 4. traditional/full-service, 8. a
9. b 50, 60 9. b
10. d 5. reduced service/higher 10. b
11. b commission, 70, 75 11. c
12. d 6. virtual office website 12. d
13. a (VOW) 13. c
14. d 7. office space 14. d
15. c 8. fixed, variable 15. b
9. Policy and Procedures
Manual
10. independent
contractors
11. hands-on, electronic,
on-the-job (mentoring)
12. training
13. contracts
14. office manager
15. honesty, integrity,
dedication, availability,
vision, creativity,
sense of humor

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402 Answer Key

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Florida Real Estate Sales Associate Post-License Course Reicon Publishing, LLC
 INDEX
1 process, 57, 122, 240 commercial, 328 explained, 246-251
purpose of, 56 industrial, 328 intangible tax on new
1031 exchange, 321-322 reports, 53, 58 property management, mortgage liens, 261,
1968 Charter Act, 121 Appraising, 3 328 262
1988 Fair Housing Appreciation, 53, 126, 295, residential, 328 proration and
Amendment, 214 303, 304, 320 Budget mortgages, 259 prepayment
Armed forces, 37 Business computations, 252-
5 Arms-length transaction, brokerage, 328 255
55 and older housing, 217 65 income, 20 review, 263-264
Arrears, 252, 256, 257 operations, 39 state documentary
A Articles of incorporation, plan, 79, 330, 333 stamp, 262
286, 288 plan worksheet, 20-21 Code of Ethics, 4, 5, 6, 7,
Absentee owners, 3
"AS IS" Residential planning, 10, 327 30, 32, 280
Accountant's opinion letter,
Contract for Sale and Business models Color, 15, 83, 105, 106,
291
Purchase, 180-181 broker sells/no 204, 212, 214, 215,
Adjustable rate mortgage
"As is, where is", 281 associates, 332 219, 223, 225, 333, 339
(ARM), 126, 136
Asbestos-containing high or 100% Commercial
elements of
materials (ACMs), 198 commission, 332 bank, 114, 115, 116,
index, 126
Assemblage, 63 reduced service/higher 118, 119, 134
margin, 126
"Assumption of" method, commission, 331 brokerage, 338
Adjusted basis, 315, 316,
256 traditional/full service, sales, 2
317, 318, 319, 320
Auction industry terms 330-331 retail properties, 308
Administrative
buyer's premium, 281 virtual office website Common elements, 287
law judge (ALJ), 218
minimum bid, 281 (VOW), 332 limited, 288
Procedures Act, 32
open outcry, 281 Buydown, 132, 141 Community association
Advertising, 39, 82, 86,
sealed bid, 281 Buyer management (CAM)
104, 142, 153, 212,
sealed bid convertible, agreements, 163 license, 296
213, 223, 225, 331,
281 prospect sources, 153- Community association
336, 340
with reserve/no stated 154 monthly fee proration,
Advertising plan, 104
price, 281 Bylaws, 286, 288, 293 254
Advertising, types of
without Comparable adjustment
direct response, 83 C
reserve/absolute, methods
tombstone, 82, 83
281 Capital matched pair (or
After-tax cash flow
Auctions, 44, 269, 280 gain(s), 53, 315, 317, paired) sales
(ATCF), 313
Automated valuation 318, 320 technique, 68
Aggravating
model (AVM), 73 tax rate. 318 square footage
circumstances, 32
loss, 317, 318 technique, 68
Agricultural sales, 2 B Caravans, 106 Comparable sales
AIDA standard, 105
Balance sheet, 291 Cash flow, 292, 302, 307, approach, 58, 59, 60,
Air-conditioning systems,
Balloon 313, 315, 321 61
200, 201, 203
framing, 192 Central air-conditioning Comparables, 62, 65, 66,
Americans with Disabilities
payment, 125 systems, 203 67, 68, 69, 70, 71, 72,
Act (ADA), 217-218
Basis, 315 Certificate of 167
Amorte, 125
Before-tax cash flow eligibility, 139 Comparative market
Amortization, 124, 125,
(BTCF), 311, 313, 321 reasonable value analysis (CMA), 4, 11,
127, 130, 132, 270, 315
Beginning basis, 315, 317, (CRV), 140 52, 60, 61, 62, 64, 65,
negative, 126, 127,
319, 320 sale, 279 68, 69, 72, 73, 84, 86,
131, 270
Biweekly mortgage, 131 Changed financial 93, 161, 169, 239, 274,
Amount realized, 315, 317,
Black book, 289 circumstances, 275 339
318, 319
Blanket mortgage loan, Channeling, 215 Compilation, 291
Amperage (amperes or
132 Circuit protection, 205 Completion date, 290
amps), 205
Blockbusting, 214, 215 Circuits, 204, 205 Comprehensive
Ancestry, 213
Board Civil Rights Act of 1866, Environmental
Anchor tenant, 308
meeting minutes, 292 212 Response,
Annual mortgage
of directors, 287, 291 Classified ads, 105 Compensation, and
insurance premium
Boot, 322 Cleared funds, 245 Liability Act (CERCLA),
(AMIP), 135
Box, the, 240 Closing, 231, 245 310
Apartment building or
Bridge loan, 132 after, the, 265 Conciliation, 218
complex, 307
British thermal units costs, 98, 134, 135, Condenser, 201, 202, 203
Appraisal
(BTUs), 197, 200 141, 145, 146, 175, Conditional commitments,
comparable sales
Broker 181, 246, 247, 277, 135
approach, 58, 59,
open house, 107 317, 319 Condominium, 286
60, 61
price opinion (BPO), date, 168, 173, 179, association's question
cost-depreciation
73, 274 185, 233, 246, 253, and answer sheet,
approach, 58, 59, 60
sells/no associates 290 286
function of, 56
model, 332 day, 265 characteristics, 287
income approach, 58,
Brokerage relationship process, the, 231, 245 documents, 287-288
59, 60
disclosures, 43 Closing Disclosure, 11, Governance Form, 286-
intended use of, 53, 56,
Brokerage specialties 184, 233, 244, 246-264, 287
57
principles, 54 business, 328 277

Reicon Publishing, LLC 403

404 Index
Condominiums and Declaration of listing, 95 Section 251 Adjustable
cooperatives, 306 condominium, 286, 288 right of sale listing, 95 Rate Mortgages,
Conductors, 204, 205 Deed in lieu of foreclosure, Right of Sale Listing 136
Conforming 270, 272, 273, 274, Agreement, 96, 97, Fictitious or stolen identity,
lenders, 122 280 340 148
loans, 122 Deferred interest, 270 Existing mortgage interest Financial
Consent to Transition to Deficiency judgment, 275, proration, 256 analysis, 311, 322
Transaction Broker, 44 279, 280 Expired listings, 67, 78, 80 Institutions Reform
Construction mortgage, Definite valuable Extension agreements, Recovery, and
133 consideration, 181 271 Enforcement Act of
Consumer Credit Demand accounts, 115, 1989 (FIRREA), 51,
Protection Act, 142 116 F 115
Consumer Financial Department of Housing F.A.C. 61J2, 31, 32, 33, intermediaries, 113,
Protection Board and Urban 34, 35, 36, 38, 39, 40, 114
(CFPB), 244 Development (HUD), 41, 42, 43, 45, 237, 238 statements, 3, 146,
Contact management 121, 122, 134, 135, 328, 329, 330 269, 291, 293
software, 14 216, 218, 219, 220, Fair Housing Act, 212, Fine, 32, 33, 36, 38, 39,
Continuing education (CE) 223, 244, 263, 280 213, 214, 215, 220 40, 42, 43, 45, 143,
requirements, 35-36 Depreciation, 53, 58, 59, Fair Housing Advertising 195, 220, 241
Contract 292, 313, 316, 319-320 Word and Phrase List, Fixed
for deed, 133, 141 Depth of the property, 63 224-225 expenses (FE), 312,
for Residential Sale and Desktop underwriting, 122 Fair Isaac & Company 335
Purchase, 181 Direct (FICO), 134, 147, 148 rate loan, 125, 126
negotiation, 182-183 capitalization, 60 Familial status, 213, 214, Fixer-uppers, 224, 306
termination, 183-184 response advertising, 215, 223, 226 Flag lot, 191
Contracts 83 Fannie Mae (Federal Flex space, 305
oral (parol), 169 Discipline, 32 National Mortgage Flood insurance, 206, 240,
preparing, 96 Discrimination, 212, 213, Association) (FNMA), 241-242
written, 169 216, 218, 219, 221, 121, 122, 244 insurance rate maps
Contribution, 55 222, 223, 225, 226 Farming, 2, 17, 80, 81, (FIRMS), 241
Convenience centers, 309 Discrimination in 154, 338 Floor plans, 289
Conventional advertising, tips to Federal Florida
mortgage loan, 127 avoid, 225 Credit Union Act, 118 Association of
qualifying ratios (debt Discriminatory advertising, Deposit Insurance REALTORS (FAR), 5,
ratios), 128, 137 223 Corporation (FDIC), 11, 96, 163, 164
Cooperative, 136, 285, Division of Florida 61, 115, 116 Bar Lawyer Referral
298 Condominiums, Emergency Service, 278
association, 290-294 Timeshares, and Management Commission on Human
documents, 293 Mobile Homes, 286 Agency (FEMA), 206, Relations (FCHR),
Core circle, 17 Dodd-Frank Wall Street 241, 242 220
Corner lot, 190 Reform and Consumer Fair Housing Act, 212, condominium law, 286
Corporation, 117, 121, Protection Act of 2010, 213, 214, 215, 220 Department of Financial
328 244 Home Loan Bank Services (DFS), 119
Cost Dormers, 195 System, 116 Fair Housing Act, 219,
basis, 315 Double entries, 252 Housing Administration 220
recovery, 319 Due (FHA), 108, 114, 119, Office of Financial
Cost-depreciation diligence, 32, 291, 310, 121, 122, 123, 125, Regulation (OFR),
approach, 58, 59, 60 329 127, 128, 134, 135, 115
replacement cost, 59 on-sale clause, 136, 136, 137, 138, 146, Office of Insurance
reproduction cost, 59 256, 262 174, 241, 244 Regulation (OIR), 115
Costs of sale, 317 Housing Finance Real Estate Commission
Counseling, 4 E Agency (FHFA), 121 (FREC or
Counter offer form, 183 Economic rent, 311 Commission), 30, 31,
Courthouse auctions, 280 Effective yield, 123 laws, 31 34, 35, 38, 219, 233,
CPVC pipe, 199 Electrical system, 203-205 Federally related 237, 238, 338
Crawl space foundation, Eleventh district cost of transaction, 3, 51, 52, REALTORS, 5, 13, 180,
191 funds, 126 61 334
Credit Eligibility, 139 FHA Florida Statutes
history, 146-147 Emotional possession, 88 loans, 134 F.S. 120 Florida
unions, 118 Employment loan limits, 138 Administrative
Cubicle of airspace, 288 and brokerage qualifying ratios (debt Procedures Act, 32
Cul-de-sac lot, 191 relationships, 42 ratios), 137 F.S. 455 Business and
Current mailing address, fraud, 148 FHA loan programs, 136 Professional
38 Endowment fund, 114, 118 Section 203(b) Regulation, 30, 31,
Entitlement, 139 Mortgage Insurance, 32, 37, 38
D Equitable 136 F.S. 475 Real Estate
Database, 12, 14, 78, 79, right of redemption, 279 Section 203(k) Brokers, Sales
80, 158 title, 133, 141 Rehabilitation Associates, Schools,
Debit, 252 Equity skimming, 148 Mortgage Insurance, and Appraisers, 2, 3,
Debt Evaporator, 201 136 30, 31, 32, 33, 34,
ratio, 128, 137 Exclusive Section 234(c) 35, 36, 38, 40, 41,
service, 139, 291, 312 agency, 95 Condominiums, 136 42, 43, 44, 52, 182,
to-equity ratio, 303 Buyer Brokerage 278, 329, 330
Agreement, 164

Florida Real Estate Sales Associate Post-License Course Reicon Publishing, LLC
 Index 405
F.S. 553 Building Goodwill, 3 Interest-only loan, 126 graduated payment
Construction Government auctions, 280 Interior lot, 190 mortgage (GPM),
Standards, 31, 206 Government loans, 114, Interviewing the buyer, 158 127, 131
F.S. 718 Florida 134 In-wall gas heaters, 200 home equity loan, 133
Condominium Act, FHA, 134 land contract, 133, 141
31, 286 VA, 139 J open-end loan, 132
F.S. 719 Cooperative Government-sponsored Jointly and severally, 329 package mortgage, 133
Act, 286 enterprises (GSE), 121 Jones v. Mayer, 212 pledged account
F.S. 720 Homeowner's Graduated payment Junior financing, 118 mortgage (PAM),
Associations, 31, mortgage (GPM), 127, 132
286, 295 131 K purchase money
F.S. 721 Florida Gross multiplier technique, mortgage, 133, 141,
Timeshare Act, 286, 60 Key lot, 191 257
294 Ground fault interrupters Kickbacks, 40, 245 reverse annuity
Flyers, 104, 331 (GFIs), 205 mortgage (RAM),
Foam-in-place insulation, L 133
198 H Land contract, 133, 141 sale and leaseback,
For sale by owner (FSBO), Handicap, 213, 214, 215, Lease option, 141 133
79, 80, 159, 160, 161, 217, 219, 223, 226 Lender's title insurance takeout loan, 133
339 Handling deposits, 40 policy, 242 wraparound loan, 132
Forbearance, 270 Heat pumps, 64, 202, 203 Letter of intent, 289-290, Loan repayment plans,
deferred interest, 270 Heating systems, 200 310 125
partial payments, 270 High or 100% commission Level payment loan, 125 adjustable rate
prepayments, 270 model, 332 License mortgage (ARM),
waiver of principal Highest and best use, 58 reactivation, 36 126
payments, 270 High-rise buildings, 304 renewal, 34, 35 fully amortized, 125
Force majeure, 178 Home equity loan, 133 Life insurance companies, graduated payment
Foreclosure Home site aspects, 63 116 mortgage, 127
alternatives, 269 Home tours, 106 Lifetime cap, 127 partially amortized with
process, 278 Homeowners' Association Like-kind exchange, 179, a balloon payment,
rescue schemes, 149 (HOA), 286, 295, 296 321 125
schemes, 149 Homeowner's insurance, Liquid Local Association of
Form 1099C Cancellation 240 asset, 302 REALTORS, 5
of Debt, 274 Homeowners Protection market, 302 Lots, types of
Form reports, 59 Act of 1998 (HPA), 128 Lis pendens, 279 corner, 190
Forms programs, 12, 171 Hot water heaters, 199 Listing contracts, 95, 96 cul-de-sac, 191
Foundations Housing and Community exclusive listing, 95 flag, 191
crawl space, 191, 192, Development Act, 213 exclusive right of sale interior, 190
236 Housing expense ratio listing, 95 key, 191
slab, 191, 192 (front-end), 128, 137, net listing, 96 T lot, 191
slab-on-grade, 191, 192 140 open listing, 95 Love and affection, 170
Franchise, 328 HUD poster, 216 Listing presentation, 84, Low-rise buildings, 304
Fraud HUD-1, 263 85, 339
for profit, 147 HVAC, 200-202, 203, 234 keys to a successful, 91 M
for property, 147 manual, the, 85 Mail away closing, 245
Freddie Mac (Federal I Living area, 64, 65, 191, Making an offer, 166
Home Loan Mortgage 195, 196, 200, 203 Manager broker, 341
Corporation) (FHLMC), Illegal dual agency, 44 Loan
Illiquid asset, 302 Manufacturing buildings,
121, 122, 244 application process, 309
Friability, 198 Inactive renewals, 36 143
Income approach, 58, 60 heavy, 309
Friable, 198 correspondents, 119 light, 309
Frontage measurement, direct capitalization, 60 Estimate, 244
gross multiplier Marginal tax
63 origination, 114, 119, bracket, 313
Fully amortized, 125 technique, 60 120, 123
Income rate, 314, 318
Fully amortizing, 125 originator, 13, 108, 122, Market
Function, 3, 23, 56 ratio, 146 168
statement, 148, 292 analysis, 310
Functional obsolescence, sharking, 117 rent, 311
64 tax liability, 313 term, 124, 125, 127,
Independent firm, 330 Marketing, 10, 22, 24, 81,
Funding fee, 138 130, 270 87, 154, 212, 339, 340
Industrial to-value ratio (LTV), basics. 23
G brokerage, 328 123, 240, 260, 303 color in, 83
properties, 309 Loan fees
Garden office buildings, sales, 2 mistakes, 25
304 origination, 123 plan, 86, 93
Inflated appraisals, 148 points, 123
General data, 57 In-house transaction, 44 pull marketing, 82
Geographic farm area, 79, Loan options, 131 push marketing, 82
Inner circle, 18 biweekly mortgage, 131
80, 154 Installment land sales resources, 23
Geothermal systems, 203 blanket mortgage loan, self, 11
contract, 133, 141 132
Gift letter, 134, 144 Institutional lender, 113, skills, 11
Ginnie Mae (Government bridge loan, 132 Masonry, 193
242, 259 buydown, 132, 141
National Mortgage Insulation, 197-198, 200 Matched pair (or paired)
Association) (GNMA), construction mortgage, sales technique, 68, 69
Insulator(s), 192, 197, 198, 133
121, 244 204 Mega malls, 308
Going concern value, 3 Intangible tax, 261, 262 Miami windows, 197
Good consideration, 170 Mid-rise buildings, 304

Reicon Publishing, LLC Florida Real Estate Sales Associate Post-License Course
406 Index
Mission statement, 15, 336 Negative Outlet centers, 308 private parties, 116
Mitigating circumstances, amortization, 126, 127, Outsourcer, 73 REITs, 117
32 131, 270 Owner's title insurance savings associations,
Mixed-use property, 308 leverage, 302 policy, 242 115
Modified Accelerated Cost Negotiable order of Ownership days, 252 syndications, 117
Recovery System withdrawal (NOW) Primary seller financing,
(MACRS), 319 accounts, 116 P 141
Monolithic pour, 192 Neighborhood Package mortgage, 133 Principle of
Moratoriums, 270 aspects, 62 Panic anticipation, 54
Mortgage centers, 308 peddling, 215 change, 54
backed securities Net selling, 215 competition, 55
(MBS), 120 listing, 96 Parol contracts, 169 conformity, 55
bankers, 119 operating income Partial contribution, 55
Forgiveness Debt (NOI), 60, 302, 307, payments, 270 progression, 56
Relief Act of 2007, 274 311, 312, 313, 323 release clause, 132 regression, 56
Guarantee Insurance proceeds from a sale, Partially amortizing, 125 substitution, 56
Corporation (MGIC), 317 Partnership, 42, 117, 123, Private auction contract
127 Nolo contendere, 30, 38 328, 329 terms
insurance premiums Nominee loans or straw Pass-through security, 121 "as is, where is," 281
(MIP), 135 buyers, 148 Past clients, 79, 81, 339 no contingencies, 281
loan originators (MLO), Nonexclusivity, 290 Payment cap, 127 Private
118, 143, 168, 291 Noninstitutional lender, PB pipe, 199 auctions, 281
participation, 120 114, 116 Pending loan companies, 118
pools, 120 Nonrecourse loan, 271 file, the, 184 mortgage insurance
underwriting, 144 Non-smokers, 224, 226 sale, 66 (PMI), 127, 135
Mortgage fraud, 147-149 Notes to the financial Pension funds, 118 parties (individuals),
employment fraud, 148 statement, 292 Percentage compensation, 116
equity skimming, 148 Notice of sale, 279 3 Probation, 32, 33
fictitious or stolen Notification of changes, 38 PITI, 128, 137, 146 Procedural skills, 11
identity, 148 Placed in service, 319 Product knowledge, 12
fraud for profit, 147 O Plank and beam framing, Professional organizations,
fraud for property, 147 Occupancy fraud, 148 192, 193 4
inflated appraisals, 148 Offeree, 170 Planning your business, 15 Florida Association of
nominee loans or straw Offering plan, 289, 293 Platform construction, 192 REALTORS (FAR),
buyers, 148 Offeror, 170 Pledged account mortgage 5, 11, 163, 166, 180
occupancy fraud, 148 Office (PAM), 131 Florida REALTORS, 5,
property flipping, 148 buildings, 58, 116, 133, Plumbing system, 198 12, 174, 183
resources, 149 304 PMI, 115, 127, 128, 135 Local Association of
shotgunning fraud, 148 manager, 333, 341, 342 Point of contact REALTORS, 5
silent second, 148 of Fair Housing and information, 39 National Association of
Most similar, 51, 72 Equal Opportunity Points, 123, 139 REALTORS (NAR),
Multifamily housing, 122, (FHEO), 218 Polarized, 204 4, 5, 6, 10, 163
307 of the Comptroller of Policy and Procedures "Profile of Home Buyers
Multiple listing service the Currency (OCC), Manual, 336 and Sellers" Report,
(MLS), 4, 5, 12, 15, 18, 115, 116 Portfolio loan, 122 155
67, 78, 79, 80, 81, 87, Ohm, 205 Positive leverage, 126, Prohibited acts, summary
95, 101, 103, 104, 106, On-demand system, 199 302 of, 214
214, 232, 233, 265, One-step listing Post-license requirements, Property
278, 332, 337, 339, 340 appointment, 86 34 analysis, 310, 322
One-year T-bill rate, 126 Pre-closing (walk-through) briefs, 104
N Open house, 44, 87, 104, inspections, 264 features and
NAR 105, 107, 156 Preparing contracts, 96 improvements, 64
Certifications, 8 broker, 107 Prepayment(s), 270 flipping, 148
Code of Ethics, 30, 32 public, 107 of escrow item, 259 insurance, 240
designations, 9, 10 Open of mortgage interest, management, 3, 45,
Narrative reports, 59 end loan, 132 257, 258 296, 328
National listing, 95 Pre-qualified, 143, 157, management violations,
Association of Certified Operating expenses, 3, 20, 158 45
Home Inspectors 22, 132, 310, 311, 312 Price, 54 manager, 9, 296, 328
(NACHI), 235 Option Price and deposits, 290 tax proration, 252
Association of Real contract, 181-182 Primary mortgage market, transfer, 10
Estate Boards money, 100, 181, 182 114-119 width, 64
(NAREB), 5 Optionee, 182 commercial banks, 115 Proprietary lease, 291, 293
Association of Real Optionor, 182 credit unions, 118 Proration and prepayment
Estate Exchanges, 5 Oral (parol) contracts, 169 endowment funds, 118 computations, 252
Association of Oral reports, 59 life insurance Prospecting, 7, 11, 13, 14,
REALTORS (NAR), Organizations, forms of companies, 116 77, 78, 79, 80, 81, 82,
4, 5, 6, 8, 9, 10, 30, corporation, 329 mortgage bankers, 119 83, 84, 85, 154, 338,
32, 161, 332 franchise, 330 mortgage loan 339
Auction Association independent firm, 330 originators (MLO), for sellers, 79
(NAA), 280 partnership, 42, 117, 118 through marketing, 81
Housing Act, 286 123, 328, 329 pension funds, 118 tips, 83
origin, 212, 214, 215, sole proprietorship, 328 private loan companies, using color in, 83
217, 219, 223, 225 Outer circle, 19 118 Prospectus, 289

Florida Real Estate Sales Associate Post-License Course Reicon Publishing, LLC
 Index 407
Protected classes, Recasting, 271 Fannie Mae, 121, 122, documentary stamp
summary of, 214 Redlining, 215 244 tax, 261
Public open house, 107 Reduced service/higher Freddie Mac, 121, 122, intangible tax, 260, 261,
Pull marketing, 82 commission model, 331 244 262
Purchase money Regional centers, 308 Ginnie Mae, 121, 244 transfer taxes, 260
loan, 141 Regulation Z, 142 Section 1031 exchange, Statement
mortgage, 133, 257 Religion, 212, 214, 215, 321 of financial position,
Push marketing, 82 217, 219, 223, 226 Seller financing, 133, 140 291
PVC pipe, 199 Rent proration, 255 buydown, 141 of operations, 291
Rental closing costs, 141, 177, Statute
Q agent, 3 183 of frauds (F.S. 725.01),
Quitclaim deed, 272 information, 40 installment land sales 169, 182
Repayment period, 123, contract, 141 of limitations, 159
R 124 lease option, 141 Steam systems, 200
Replacement cost, 59 primary, 141 Steering or channeling,
Race, 157, 212, 213, 214, Reprimand, 32, 33 purchase money loan, 212, 215, 225
215, 217, 223, 225 Reproduction cost, 59 141 Stigmatized properties,
Radiant ceiling heat, 200 Request for verification of Seller's Real Property 220
Radiation systems, 200 employment, 145 Disclosure Statement, Stock certificates, 293
Range of penalties, 33 Required disclosure forms, 165 Straight-line basis, 320
Rate adjustment 46 Selling and packaging of Strip centers, 309
date, 126 Rescission periods, 286 loans, 119 Subject
period, 126 Research and Servicing property, 57, 61, 62, 65
Readily achievable, 218 development (R&D), a loan, 119 to, 256
Real estate brokerage 304 the listing, 10, 103 Subscription agreement,
corporation, 329, 330 Reservation deposit, 289 Sex, 213, 214, 215, 217, 293
partnership, 329 Reserve 219, 223, 226 Substructure, 191, 192,
deductions and for replacements (R), Shopping malls, 62, 308 193
exemptions, 314 311, 312 Short sale Sufficient consideration,
forms section, 347 fund, 291, 292, 293 benefits, 275 170
owned (REO), 73 Residential documentation, 276 Super regional centers,
Settlement Procedures brokerage, 328 package, 277 308
Act (RESPA), 244, 245, Contract for Sale and transaction, 270, 274, Superstructure, 191
246, 263 Purchase, 171-180 275, 278, 280 masonry, 193
taxation, 313 property, 305 transaction guidelines, wood framing, 192
Real estate investment, sales, 1, 43 277 Suspension, 4, 33, 36, 38,
301, 303, 310, 320 transaction, 2 Short-lived items, 312 39, 40, 42, 45
commercial/retail Resolution Trust Shotgunning fraud, 149 Syndicate, 117
properties, 308 Corporation (RTC), 115 Showing Agreement, 163 Syndications, 117
industrial properties, RESPA requirements, 244 Showings, 44, 80, 87, 94,
309 Restructure the mortgage 104, 107, 159, 165, T
mixed-use property, loan, 270 167, 227
308 T lot, 191
Reverse annuity mortgage Silent second, 149 Takeout loan, 133
office buildings, 58, (RAM), 133 Simultaneous issue, 242
116, 133 Tankless water heater,
Revocation or denial, 33 Single 199
residential property, Roofs, types of, 194 entries, 252
305 Tax
dormers, 195 family home, 138, 162, depreciation, 319, 321
steps, 309 flat, 195 305
trusts (REIT), 117 deferred exchange, 322
gable, 194 Slab free exchange, 321
equity, 117 gambrel, 194 foundations, 192
mixed, 117 shelter, 321
hip, 194 on-grade foundations, Taxable income, 313, 314,
mortgage, 117 mansard, 194 192
unimproved property, 318, 321
saltbox, 195 Sober, 170, 226 Taxpayer Relief Act of
304 shed, 195 Sole
Real estate specialization, 1997, 314, 318
Rural Housing Service proprietor broker, 328 Technology, 11, 78
1 (RHS), 134 proprietorship, 328
agricultural sales, 2 Thrifts, 115
R-value, 197 Southern Building Code, Time
appraising, 3 206 deposits, 115, 116
business brokerage, 3 S Special flood hazard areas management, 18
commercial sales, 2 (SFHAs), 241
counseling, 4 Sale and leaseback, 134 Timeshare, 2, 41, 42, 294,
Sale price, 61, 66, 69, 70, Special risks, 289 295
industrial sales, 2 Specialty center, 308
property management, 239, 243, 261, 317, 334 disclosure equirements,
Savings Sphere of influence, 17, 294
3 78, 79, 80, 153
residential sales, 1, 43 and loan associations, listing agreements, 41
51, 115, 134 core circle, 17 Purchase and Sale
timeshare/vacation inner circle, 18
ownership sales, 2 Association Insurance Agreement, 41
Fund (SAIF), 116 outer circle, 18 Timeshare ownership
Real property investment, Sponsor, 287, 288, 289,
characteristics of, 302 associations, 114, 115 point system, 2, 294
banks, 115 293 right-to-use, 2, 294
leverage, 302 Square footage technique,
liquidity, 302 Secondary market sales, 2
transaction, 120 69 vacation lease, 294
risk, 302 Stamp tax, 260, 261, 262,
Realized capital gain, 317 Secondary mortgage Title insurance, 17, 221,
market, 114, 120, 121, 263 233, 238, 239, 240,
Rebates, 39 State
123, 242 242, 315, 318

Reicon Publishing, LLC Florida Real Estate Sales Associate Post-License Course
408 Index
Tombstone advertising, Unimproved property, 304 Value, 52 Windows, 196
82, 83 Unrealized capital gain, Value, types of, 52 Wood framing, 192
Tons, 196, 200 317 Variable expenses (VE), Word processing, 12, 13,
Total obligations ratio Up-front mortgage 312, 336 335
(back-end), 128, 137, insurance premium Ventilation, 200 Working with
140 (UFMIP), 135 Virtual office website appraisers, 239
Traditional/full service Use of the unit, 288, 290 (VOW), 332 clients, 222
model, 330 Usurious, 117 Voltage (volts), 204, 205 home inspectors, 234
Triggering terms, 142 Usury laws, 114, 117 Voluntary conveyance, Workout, 269
Truth in Lending Act 272 Wraparound loan, 132
(TILA), 142, 143 V Written contracts, 139
Two-step listing VA
W
appointment, 86 appraisals, 140 Waiver of principal
Y
Two- to four-family loans, 139 payments, 270 Your Home Loan Toolkit,
dwellings, 306 qualifying ratios (debt Wall air conditioners, 202 244
ratios), 141 Warehouse/distribution
U Vacancy, 307, 311, 312, buildings, 309
Underlying mortgage, 291, 329 Warehousing, 119
292 Vacation homes, 193, 305 Warranty deed, 272
Uniform Standards of Valuable consideration, Water supply, 218
Professional Appraisal 170 Wattage (watts), 205
Practice (USPAP), 4, 7, Valuation, 10, 52, 53, 56, Wheelchair ramp, 226
52, 53, 56, 61 57 Window method, 165

Florida Real Estate Sales Associate Post-License Course Reicon Publishing, LLC