Contracts between Broker and Salesperson: Relationship and Obligations

The relationship between a broker and a salesperson licensed under that broker can be established by contract as one of two possibilities: independent contractors or employer and employee. All obligations of the broker and the salesperson created under the Real Estate Act or the Commissioner's regulations apply regardless of whether the relationship between the broker and the salesperson is that of independent contractors or employer-employee.

Listing Agreements

Definitions (GCP 10027; Ref 105)

A listing is a written contract whereby a principal employs an agent to perform certain services on behalf of the principal in connection with the sale or lease of real estate, as well as commercial opportunities.

Requirements

It must include all the essential elements of a valid contractCompetent parties, lawful purpose, mutual agreement, consideration. An agent who has a listing is subject to the law of agency and has certain fiduciary duties to the principal that do not exist between two principals. Under the Statute of Frauds, listings must be in writing; where a written contract does not express the true intent of the parties, the courts will attempt to discover the true intent (Ref 97; CC 1624(5)). An exclusive listing must include a definite termination date (BPC 10176(f)).

Types (Ref 105; 158)

Open, exclusive agency, exclusive right to sell, exclusive authorization to purchase, option, and net price listings are all permitted. In a net price listing, an agent must disclose the amount of compensation before or at the time the principal becomes obligated on the transaction (BPC 10176(g)). The agent is also required to disclose the sales price to both buyer and seller in writing within one month after closing, this information is considered disclosed by the trustholder's closing statement (BPC 10141).

Delivery of the agreement (BPC 10142)

A licensee must provide a copy of the agreement to the person signing it at the time the signature is obtained. This requirement applies equally to listing agreements, purchase contracts, escrow receipt forms, contract addendums, and property management agreements (Ref 508).

Right to compensation (Ref 155)

To be enforceable, the listing agreement or other agency agreement must clearly show the obligation to pay compensation to the broker.

Advanced Fee Agreements

Definitions (Ref 277; GCP 10026, 10085, 10085.5, 10113.2, 10146)

An advanced fee is a fee claimed or received before fully completing the service that the licensee agreed to perform. Payments for:

• security
• selection fees
• advertising in a medium not controlled by the broker
• fees earned under a limited service agreement

Escrow Requirements (BPC 10146)

Funds received as advanced fees must be deposited in a trust account at a bank or other recognized depositary and are subject to trust fund requirements. Deposited funds may be withdrawn for the benefit of the agent only when they have actually been spent for the benefit of the principal or 5 days after accounts verified have been mailed to the principal in accordance with the law. The principal can recover triple damage for misapplied amounts and is entitled to reasonable attorneys' fees.

Materials and accounting (CCR 2970, 2972; BPC 10085)

All materials related to the advanced rate agreement must be submitted to the Commissioner for approval at least 10 calendar days before use. The materials must:

• don't be deceptive
• do not give up verbal commitments
• not guarantee successful completion
• clearly describe the services
• indicate the amount of the fee and when it must be paid
• establish a definitive date for the complete fulfillment of the promised services. The content of the accounting must include:
• agent name
• name of principal
• description of the services provided or to be provided
• trust fund account identification
• advanced fee amount collected
• amount allocated or disbursed for services, commissions, overheads, profits
• ad copies, number of ads, publication dates and publication details
• if applicable, names and addresses of the persons to whom the principal loan requirements were sent and the dates of sending.

Contracts

Statuts of Frauds (Ref 95-97: CC 1624)

Certain contracts are invalid unless they are written and signed by the party to be charged or by his agent, including:

• agreements that must not be executed within one year from signature or within the life of the promisor.
• leases for a period of more than one year.
• contracts for the sale of real estate or interests.
• agreements that employ an agent to buy or sell real estate.
• agreements that employ an agent to lease real estate for a period of more than one year in exchange for compensation or commission.
• agreements of a real estate buyer to assume a mortgage or a deed of trust obligation unless the assumption is specifically provided for in the conveyance.
• commitments to lend money or extend credit in excess of one hundred thousand dollars ($100,000) by a person in the business of lending or credit, unless secured solely by residential properties consisting of one to four dwelling units.

Uniform Seller and Buyer Risk Act (Ref 104; CC 1662) – Uniform Vendor and Purchaser Risk Act

If property is destroyed through no fault of the buyer or is taken by eminent domain before the transfer of title or possession, the seller cannot enforce the contract and the buyer is entitled to recover any part of the price paid. If legal title or possession has been transferred and any part of the property is destroyed through no fault of the seller or is taken by eminent domain, the buyer may be required to complete the transaction and is not entitled to recover any part of the price already paid. .

Real Property Sales Contract (Real Property Sales Contract)

         

         Definitions (BPC 10029, Ref 88)

• A real estate sales contract is an agreement to transfer title to real estate to another party upon satisfaction of specified conditions and that does not require transfer of title within one year from the date of the contract.
• Parties incapable of contracting: Unemancipated minors (under 18 years of age and unmarried, on active military service or emancipated by a court), persons of insane mind, aliens, and persons deprived of civil rights (e.g., convicts).
• An offer is an offer by one of the parties to the contract to perform their part of the contract (Ref 106). Form
• A model form developed by the California Association of Realtors® with the approval of the DRE, called “California Residential Purchase Agreement and Joint Escrow Instructions“, is widely used, although it is not mandatory. Provisions (Ref 102)
• Agreement date.
• Names and addresses of the parties.
• Property description.
• Consideration.
• Terms and conditions of existing mortgages, if any.
• Date and place of closing of the contract.
• Other provisions required by either party.
  

  Earnest money, deposit receipt (Ref 106)

• California brokers use an escrow receipt when accepting a down payment with an offer to purchase real estate.
• The receipt must contain a complete understanding between the buyer, seller and broker of the disposition and disbursement.

• Tender (Ref 106)

• It is usually done at the time of escrow closing.
• If one party defaults, the other party makes the offer.
• If litigation arises, the party who made the offer can legitimately claim that the other party defaulted.
• If the other party refuses to accept the offer, the party who made the offer may terminate the contract or sue for breach of contract or specific performance.

Title Transfers (Title Transfers)

Means of acquiring the title (Ref 106-110)

Testament (Will): Formal, with witnesses, holographic, statutory, statutory with trust.

Succession (Succession): Separate property or community property.

Accession (Accession): Alluvium, reliction, avulsion, addition of accessories, improvements made by mistake.

Occupancy: Abandonment, prescription, adverse possession.

Transfer (Transfer): Private or public concession, gift, alienation by law or judicial action.

Marriage

Escheat (Escheat)

Public domain (Eminent Domain)

Equitable Estoppel

Title Insurance

It protects against many types of unregistered risks, depending on the type of policy purchased. The policy commonly used in California is that of the California Land Title Association (CLTA).

Title, registration, notification (Ref 51; CC 2934)

After being recognized (executed in front of a Notary Public or properly witnessed as provided by applicable law), any instrument or judgment affecting title or possession may be recorded. An instrument is generally registered when it is duly recognized or verified and is deposited in the registrar's office with the appropriate official and marked as “presented for registration” (Ref52).

Preliminary report (Preliminary report) (Ref 83-85; Ins C 1234.11)

The title insurance industry typically issues a “Preliminary report ” instead of a “search” or “title summary.” He "Preliminary report” is an offer to issue a title policy subject to stated exceptions, not a representation of the condition of the title.

Mortgages, Deeds of Trust, Notes (Mortgages, Deeds of Trust, Notes)

Mortgages and deeds of trust They are functional equivalents under California law. The mortgage or the deeds of trust It is the security instrument that establishes the real estate property described as collateral for the debt/loan or obligations that the promissory note evidences. The promissory note (promissory note) is evidence of the debt between the borrower and the lender. It is also the contract that represents the borrower's promise to pay the lender according to the agreed upon terms.

If there are conflicts between the promissory note and the deed of trust wave mortgage, generally the terms of the promissory note take priority.

Leases

Term (Term)

If a lease does not specify its term, a specific period of time will be implied as a matter of law, and the length of that period of time depends on the nature of the lease and the circumstances surrounding it.

Security deposit

A security deposit is held by the landlord for the benefit of the depositing tenant, and a tenant's claim to the security deposit takes priority over the claims of all of the landlord's creditors, except a bankruptcy trustee.

In a residential lease, the security deposit is refundable, and the tenant cannot waive the right to a refund.

In addition to the first month's rent, a landlord may require a maximum deposit of:

• Two months rent in the case of an unfurnished residential property.
• Three months' rent in the case of a furnished residential property.
• Six months' rent if the lease term is six months or more.

Landlord obligations

A residential landlord must maintain the home in habitable condition, including:

• Effective waterproofing and weather protection of the roof and exterior walls, including windows and doors without breakage.
• Plumbing or gas installations in good working order.
• Water supply producing hot and cold running water, provided with suitable fixtures and connected to an approved sewage disposal system in accordance with applicable law.
• Heating installations that comply with applicable law at the time of installation and are maintained in good working order.
• Electrical lighting, with wiring and electrical equipment that comply with applicable law at the time of installation, and are maintained in good working order.
• Building, grounds and fixtures, as well as all areas under the control of the owner, must be kept clean, sanitary and free from accumulations of debris, dirt, trash, debris, rodents and pests.
• Adequate containers for trash and rubbish, in clean condition and in good repair.
• Floors, stairs and railings must be kept in good repair.
• One lockable mailbox for each residential unit in a residential hotel.
• One operable smoke detector for each unit.

If the landlord fails to maintain a residential property in a condition suitable for human occupancy, the tenant may notify the landlord to repair the premises. If, after receiving notice from the tenant, the landlord does not make necessary repairs in a reasonable time, the tenant has the statutory right to:

• Spend up to one month's rent on repairs (only twice in any twelve-month period).
• Abandon the property, in which case the tenant is exempt from the obligation to pay additional rent and from complying with other conditions of the lease.

Tenant obligations (Tenant obligations)

In addition to the obligation to pay rent, the tenant must:

• Keep your portion of the property as clean and sanitary as the condition of the property permits (unless the owner has expressly agreed in writing to do so).
• Dispose of garbage and household waste in a clean and sanitary manner (unless the owner has expressly agreed in writing to do so).
• Properly use plumbing, electrical and gas facilities and maintain them in clean and sanitary condition as their condition permits.
• Not intentionally destroy, deface, damage, deteriorate or remove any part of the dwelling structure or unit, fixtures, equipment or fixtures, nor allow any guest of the tenant to do so.
• Occupy the property as a home, using only those parts that were designed or intended for such use.

Tax Aspects

Property taxes

In California, property taxes are levied based on the value (ad valorem) of the property on the date of acquisition or the date of completion of any new construction.

• The Morgan Property Taxpayers' Rights Act gives property owners the right to obtain copies of the appraiser's documents relating to the appraisal and evaluation of the property owner's property.

Property taxes become liens on January 1 of the year preceding the tax year (July 1 through June 30) for which the taxes are levied.

• Half of the real estate tax is due on November 1 and is paid without penalty until December 10.
• The second half expires on February 1 and is paid without penalty until April 10.

Proposition 13 (1978) amended the State Constitution to limit the maximum annual real property tax to one percent of the “full cash value” (market value), plus a maximum of two percent annually based on the rate of consumer prices (CPI).

• An additional amount is allowed for debt on affected property approved by voters prior to the passage of Proposition 13.
• Selected new debt is only allowed by a two-thirds vote of affected residents.

Proposition 39 (2000) authorizes bonds for the repair, construction or replacement of school facilities if approved by the 55% of local votes.

A homeowner exemption of the first $7,000 of total value applies to each residential property that is owner-occupied on the date of lien and meets other qualifying tests.

Seniors (age 62 or older) and people who are blind or disabled can defer paying taxes on their residences.

• Interest is charged and deferred taxes and interest are recovered when the property is sold.

Federal taxes

Taxes not paid to the Internal Revenue Service become a general tax lien on all property and property rights of the taxpayer, including those acquired after the lien arises.

In addition to the general tax levy, the Internal Revenue Code establishes special levies for estate and gift taxes.

Exemption from income tax on the sale of a home: $250,000 for a single person, $500,000 for joint filers, excluded from income if residency and other conditions are met.

Estate tax: As of 2016, there is an exemption for estates valued at less than $5,450,000.

• The excess is subject to a 40% tax rate.

Special assessments

Special assessments may be periodic for improvement districts or levied only once by the city or county for a particular job or improvement.

Liens created by special assessments typically have the same priority as general tax liens.

State taxes

Any tax liability that is due constitutes a state tax lien due on all real property located in this state.

Documentary transfer tax (Documentary transfer tax)

Counties may apply a document transfer tax to transfers of real estate located in the county.

• The tax is calculated at a rate of 55 cents per $500 of consideration or fraction thereof.
• The payment advice is entered on the document itself or on a separate paper recorded with the document.

The amount of a city transfer tax is set at half the rate charged by the county.

• The county collects the entire tax, but gives half of the amount collected to the city.

Mobile homes taxation (Mobile homes taxation)

Mobile homes and manufactured homes are subject to local property taxes under prescribed circumstances.

If the mobile home is subject to property taxes, sales or use taxes do not apply.

Tax sales

County tax collectors are responsible for administering the sale of “tax defaulted” properties when five or more years have passed since the property taxes were paid.

• The tax collector must attempt to sell non-taxable properties that are subject to the power of sale within two years.
• The minimum price at which a property can be sold at public auction is the sum of all taxes, penalties, costs and fees.

Redemption

Real property in default of taxes can be redeemed by paying taxes, interest, redemption costs and penalties.

Any person may elect to pay back taxes in installments at any time before 5 pm on June 30 of the fifth year after the property became delinquent on taxes.

Sales by foreign persons (Sales by foreign persons)

Special federal and state tax withholding requirements apply to sales where the seller is neither a U.S. citizen nor a resident foreigner.

• The federal law is the Foreign Investment in Real Property Tax Act (FIRPTA).
• California's law is known as CAL-FIRPTA.

Under both laws, a portion of the sales price must be withheld by the buyer and paid as estimated tax on behalf of the seller.