The Washington Agency Reform was developed to help all parties understand and benefit from the laws.

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1 Introduction The law of agency regulates the relationships, duties and responsibilities of an agent to the principals he or she represents as well as third parties in a transaction. The common law of agency did NOT fit very well with the specific needs of buyers and sellers and caused confusion for real estate firms, designated brokers and those licensed to them including managing brokers and broker licensees. Since the eighties, the National Association of Realtors, local associations, The Federal Trade Commission, and the Association of Real Estate License Law Officials have been working on the reform of agency representation. The Washington Agency Reform was developed to help all parties understand and benefit from the laws. In Washington State, the Revised Code of Washington, or RCW, contains the law relating to real estate brokerage relationships including agency relationships. Chapter RCW contains definitions and describes the duties of licensees in performing real estate brokerage services and in interacting with various parties. 1

2 The Reform Act of 1997 was created to: Interpret the common law of agency as applied to real estate brokers and licensees Form legal presumptions of agency relationships with consumers consistent with natural expectations while retaining flexibility for alternative relationships under appropriate circumstances Reduce dual agency Eliminate vicarious liability and imputed knowledge as to consumers PRIOR to THE REFORM ACT OF 1997 many buyers thought that their agent" was the person who was showing them homes or properties and helping with pre-qualification, when in fact the agent was in many cases the seller s agent or a sub-agent for the seller. Now, with THE REFORM ACT OF 1997 the buyer will know who their agent" is, and under most circumstances the agent who is showing them homes and working with them is their agent. 2 Common Law of Agency The duties and obligations to the principal have since been reformed in Washington under the Washington Reform Act of PRIOR to the reform, fiduciary duties of the agent to principal or client included: Loyalty The agent must place the interests of the principal above those of him/her self and third parties, subject only to the law and ethical respects. Notice The agent must notify the principal by passing on all information known to the agent concerning the principal's property as soon as possible. Obedience The agent must obey and carry out in good faith the instructions of the principal as long as they are legal. Reasonable care and skill The agent must be competent in the areas represented by the agent. Failure to do so MAY be interpreted as negligence. Accounting The agent is required to account for all funds received on behalf of the principal and hold them in a separate trust account that cannot be commingled with the agent's funds. Presentation of Offers All written offers received must be promptly presented to the principal until the principal has accepted an offer. VERBAL OFFERS also must be presented to the seller, however the seller should NOT accept a verbal offer until it is reduced to writing. The agent MAY NOT refuse to accept or present any written offer regardless of the content or agent's opinion. The obligations that the agent has to all third parties, customers or other parties in the transaction

3 include: Honesty Reasonable care and skill Proper disclosure of material facts Under The Reform Act of 1997, An agent MAY represent the: Seller Buyer Both the buyer and seller OR None of the parties to the transaction As of January 1, 1997, this ACT makes it possible for the creation of an agency relationship through Statutory Law OR by a Written Agreement between the agent and the principals. THE REFORM ACT OF 1997 specifically clarifies that real estate agents are "special" agents meaning that the agent's duties and authorities are limited to the specific transaction. Almost all real estate transactions involve: Listing agent Selling agent Buyer AND Seller It is crucial that the parties, designated brokers, managing brokers, and brokers to a transaction know and understand agency relationships. Real estate licensees must be aware of these laws and follow them precisely to reduce the risk of lawsuits AND to protect their clients and consumers. To understand agency relationship, the licensee must be aware of how the agency is created, the importance of disclosure of representation, and how agency is terminated. Duties of the Agent to All Parties In all transactions the agent owes all parties involved certain duties. These duties MAY NOT be changed or eliminated whether or NOT the agent is representing the party: 1. Reasonable skill and care 2. Honesty and good faith 3. Present all offers notices and other communications 4. Disclose all existing material facts known by the licensee and NOT apparent or readily ascertainable to a party 5. Account in a timely manner for all money and property received 6. Provide a Pamphlet on the Law of Real Estate Agency 7. Disclose in writing to all parties whether the licensee represents the buyer or tenant, the seller or landlord, or none of the parties A licensee that has been found to be guilty of breaching any of these duties could be held liable to the injured party in a civil action for damages. The licensee could also be subject to disciplinary action by the Director of the Department of Licensing. Disciplinary actions could include suspension or revocation of license fines up to $1,000 for each offense and/or the completion of a course related to the violation. 3

4 The Agent-Principal Relationship An agent is authorized to "represent " another person who is called the principal. An employee is hired to work for another person but NOT "represent" the other person. The principal delegates a realm of authority to an agent who then works on behalf of the principal within that realm of authority as though the agent were the principal. Because of this difference, a fiduciary relationship exists between an agent and a principal that is NOT present in an employment contract. This relationship is governed by the law of agency in all business transactions. An agency agreement does NOT have to include payment or consideration. An agent can be liable for actions or lack of action EVEN when the principal has NOT promised to compensate the agent for their services. Statute of Frauds Because of the Statute of Frauds, if there is no agency agreement in writing a real estate firm or designated broker cannot sue the seller for a commission. Listing agreements between the seller and a real estate firm or designated broker should always be in writing. Even without a written agreement, a real estate firm or designated broker still MAY be considered the seller's agent and could be held to the duties and liabilities of the agency. Creation of Agency Agents must always check their real estate firm's policies before creating any type of relationship, with or without compensation, that could be interpreted as an agency relationship. Agency can be created by verbal or written contract, as well as by an IMPLIED agreement. Even though an agency relationship must be voluntary, it is sometimes created unintentionally or accidentally. An implied contract can be formed by the actions or the conduct of the parties that MAY "imply" that there is an agency. Agency also can be formed by NOT taking an action, or by allowing the actions of a third party to occur. The only requirement to create an agency is the consent of BOTH the principal and the agent. Express Agreement An agency may be created by: 4

5 Express Agreement Implied Agreement Ratification OR Estoppel An Express Agency can be: An oral OR A written agreement where the principal names their agent and the agent accepts the responsibility. A written contract is NOT required to create an agency relationship. If specific oral authorization is given from the principal, an agent MAY perform acts as a representative of the principal. In Washington State, the agreement must be in writing according to The Statute of Frauds in order for a real estate firm or designated broker to sue for a commission on the sale of property. Implied Agency Implied agency is usually created when the conduct and words of the agent and principal show an intention of agency, even though NO oral or written contract exists. This might happen when an agent has a written seller's agent agreement, such as a listing agreement and the agent tells the buyer that he/she is the seller's agent; but then, the agent spends days with the buyer looking at homes. Ratification An agency is created by ratification when the principal is aware that unauthorized actions are being taken and the principal accepts by approving or benefiting from the unauthorized actions giving the acts legitimacy. A principal MAY NOT deny the existence of an agency relationship after accepting the benefits of the agent's "unauthorized" acts. This also is referred to as agency "after the fact." If a person approves, accepts or benefits from an unauthorized act - even if the person was NOT authorized to negotiate on that person's behalf, an agency by ratification has been created. Example Broker Doug contacts Thomas, a FSBO, about listing. Thomas didn't want to list, but Doug looked for a buyer anyway. Doug finally found a prospective buyer and brought Thomas an offer containing a provision for Thomas to pay Doug a commission. At closing, Thomas claims that Doug is NOT his agent and refuses to pay a commission because he never signed a listing agreement. HOWEVER, Thomas benefited from the action, and approved it by accepting the offer. This is agency by ratification. Estoppel Agency by Estoppel occurs when a buyer or seller allows a third party to believe another person is their "authorized agent" during a transaction, but then denies that the person was authorized as their "agent" after the fact. 5

6 A principal legally is barred from using a defense in a lawsuit that contradicts a previously held position. An agency by Estoppel usually is created to protect a third party from the attempt by a principal to deny the authority of someone acting as their agent, BUT at the same time the principal has allowed the third party to believe there was an agency relationship. Example Mike JR has been handling the financial affairs of his father, Mike SR, for 17 years. Mike SR tells Mike JR to list his ranch with Ed, the Broker. Ed and Mike JR enter into the listing contract and Ed puts a "For Sale" sign on the property. Mike SR drives by the sign every day and watches Ed bring people by. Ed, the Broker, writes up an accepted offer on the ranch, but at closing Mike SR says he will NOT pay a commission because Mike JR had no authority to sign for Mike SR. HOWEVER, if Ed sues for his commission, the court will probably prohibit Mike SR from denying that Mike JR was his agent. This is because it was common for Mike JR to act on behalf of Mike SR, and he allowed Ed the Broker to believe that Mike JR was authorized to sign the listing. Types of Agents There are three basic types of agents. These different types depend on the scope of authority that the principal grants to the agent. Universal Agent A universal agent has the broadest scope of authority and usually calls for the principal to grant an unlimited power of attorney to the agent. Because a universal agent is authorized to do anything that can be lawfully delegated to a representative, the courts tend to frown on this arrangement. Universal agencies in real estate transactions are very rare, and in many states they are illegal. 6 General Agent A general agent has a wide scope of authority, but it is limited to a specific range of duties and matters. The general agent is given the authority to represent the principal in a particular business or legal matter such as the relationship between a real estate licensee and a real estate firm. The licensee acts as a general agent of the real estate firm, who in this case, is the principal. The principal (real estate firm) authorizes the licensee to represent the real estate firm in the performance of real estate business to handle the principal's matters in specific activities. The licensee has a wide scope of authority, but it is limited to the practice of real estate business. Special Agent A special agent has the narrowest scope of authority. This authority is limited to a specific: matter activity OR transaction to perform only certain acts as the agent for the principal.

7 A real estate licensee usually is a special agent when representing a buyer, seller, lessor, or lessee as a principal in a specific transaction. The real estate licensee acts as special agent for the client to negotiate with third parties but NOT to sign a contract on the client's behalf. Although a real estate licensee can be given a broader scope of authority, because of the increased liability, the firm would likely decline. Example Colleen hires licensee Simone to list her property. This listing makes Simone an agent for the principal, Colleen. Simone is granted the authorization to offer Colleen's property for sale under specific conditions and to bring offers from prospective purchasers, but Simone does NOT have the authority to actually sell Colleen's property or sign a purchase offer for Colleen. Clients and Customers The words client and customer are commonly used to describe the parties in a real estate transaction. Either the client or the customer MAY pay for the services of the real estate licensee. Client A CLIENT is a party to the transaction that the agent represents as a principal. The client usually is the person who is being represented as a principal by another person called an agent in a fiduciary relationship. The client can be the seller, buyer, tenant, or landlord. Customer A customer is a party to the transaction that the agent does NOT represent. A customer is an individual who purchases property or services. The real estate broker can only pass on non-confidential information to a customer. 7

8 Agency Disclosure Requirements BEFORE any party to whom services are rendered in a real estate transaction signs any documents, the agent must give the party a Pamphlet of Real Estate Agency Law. If the agent is involved in more than one transaction with the same party, the agent is required to give the party only one pamphlet. A written acknowledgment is NOT required, but it is recommended to write a receipt of the pamphlet in the: Purchase agreement Listing form or Other written agreement This pamphlet contains information designed to educate the parties in regard to new laws that took effect January, 1997, and must contain portions of THE REFORM ACT OF 1997 including the entire text of sections 1-12 and a cover page with a summary of the law. While the licensee is required to give only one pamphlet to a client no matter how many transactions they enter into, the licensee must give written disclosure of agency in a separate paragraph in each purchase agreement in every transaction. The disclosure MAY be made after the agreement is prepared, but it must be made BEFORE signing the agreement. It is always wise to disclose the agency representation as soon as possible to avoid misunderstandings and potential disputes. Real Estate Firm - Agent Relationship Real Estate Firms and agents have an agency relationship. Real estate licensees are special agents of the real estate firm. Real Estate Firms contract with agents to: List Promote and to Market properties and Function as authorized representatives of the real estate firm The designated broker is responsible for the supervision of ALL affiliated licensees, and can be held liable for their actions within the scope of their authority. Nearly all real estate agents are independent contractors as opposed to employees of the real estate firm. This is usually because the broker is NOT obligated to treat the independent contractor as employees for federal income tax purposes. 8

9 In - House Sales An in-house sale is a sale between a buyer and the seller that were brought together by agents working for the same real estate firm. Example Alexis and Dennis both work for Dynasty Realty. Alexis lists a home in an area where Dennis' buyers have been looking. Alexis puts up a sign and places advertising on the new listing. Dennis shows the home to his buyers, and they make a full price offer to purchase it. Alexis presents the offer and it is accepted. This means that Alexis is the listing agent and Dennis is the selling agent. BOTH agents work for the same real estate firm, so this is an in-house transaction. Real estate firms encourage in-house sales because the broker will keep a share of each agent's commission rather than a share of only one agent in a cooperative transaction. HOWEVER, there is more liability, if a dual agency exists. Agents MAY represent their own client as buyer's agent and seller's agent individually, making the broker the dual agent. Cooperative Sales A cooperative transaction would occur if Harold from Falcon Realty, brought an offer to Alexis from Dynasty Realty and it were accepted. The listing agent Alexis works for Dynasty and the selling agent works for Falcon Realty. The listing real estate firm of Dynasty would split the commission with Falcon Realty, and then each firm would split with their agent according to their contracts. The selling firm is referred to as the cooperating firm. IN THE PAST, any member of the Multiple Listing Service (MLS) bringing a buyer for a property listed with the MLS was considered to be the sub-agent of the seller. This was called the "unilateral offer of sub-agency." Because of recent reforms, most listing agreements now refer to other members of the MLS as cooperating agents. This means that there is NO agency relationship between the firms or between the selling firm and the principal created by the listing agreement. The cooperating agent MAY decide to represent the seller or the buyer. HOWEVER, if the selling agent is NOT representing the buyer, and is actually representing the seller, this seller's agency must be disclosed to the buyer and must be in writing within the earnest money agreement. A pamphlet on the Law of Agency must be given to the buyer PRIOR to signing the offer, so that the buyer will NOT mistakenly believe that the agent is the buyer's representative. In a cooperative sale, the buyer might easily assume that the continuous face-to-face working relationship has developed into a "buyer agency," when in fact the agent is the seller's agent. This can be very harmful to the buyer, especially if the buyer passes on to the seller's agents any confidential information. The seller's agent has a duty to notify the seller of that confidential information. In addition, this could be harmful to the seller, if the personal contact between the agent and the buyer creates a tendency of the agent to "help" the buyer in a manner that would interfere with the 9

10 agent's duties and responsibilities to the seller. Example Brad works for Excellent Realty. He has been showing homes that are listed with Excellent Realty to the Lambs every day for two weeks. He and Mr. Lamb have common interests and they enjoy the time together. Brad does NOT have a buyer's agency agreement with the Lambs, but they did discuss it before seeing homes. Brad told the Lambs that he would be working with them as a representative of the seller. Brad finds a house that the Lambs love and they make an offer. The Lambs tell Brad to make an offer for $ They really want the house and are willing to pay $ , if they have to. Brad, as the seller's agent, has A DUTY to notify the seller that the Lambs said that they "would pay $195,000, if they had to." Brad also gave the Lambs the pamphlet of the Law of Agency and disclosed in writing within the earnest money offer that he was a seller's agent. Still, the Lambs felt that a friendship resulted during their search for a home. Brad should have made it very clear throughout the process, that he had a duty to represent the seller's best interests. Brad ALSO should have told the Lambs that, if they did NOT want any confidential information to be given to the seller, they must NOT disclose it to him. Keep in mind though, that the selling agent can still: Write an offer for the buyer Pre-qualify for price range and financing Show homes Present offers and Estimate closing costs These services MAY be what the Lambs expected, and MAY often be sufficient to cover the needs of other buyers. Disclosure is the key to preventing serious mistakes that lead to lawsuits. Sub-agency A sub-agent is "an agent of an agent." PRIOR to the reform of agency laws, the agents within a real estate firm usually were considered sub-agents of all of the firm's clients. In addition, all members of a Multiple Listing Service also were considered to be sub-agents of the listing agent and the seller when they brought offers to other firms. MOST MLS's have eliminated sub-agency because of increased liability for the firm and the seller. 10

11 Example In this example Brad still works for Excellent Realty. He has been showing homes that are listed with many brokerages that belong to the same Multiple Listing Service. He still works with the Lambs every day for two weeks. He and Mr. Lamb share common interests and they enjoy each other s company. The Lambs feel that a friendship has been created and they believe that Brad is looking out for their best interests because of this bond. The Lambs ask Brad to write an offer on a home listed with Okay Realty. PRIOR to the Washington Reform Act, Brad would automatically be considered a sub-agent or representative of the seller, who listed with Okay Realty. Sub-agency, whether or NOT the seller authorized the sub-agency, has been eliminated by most MLS's. Real estate firms also MAY have their own policy concerning sub-agency and MAY or MAY NOT allow it as a choice to cooperating brokers. A "sub-agency" arrangement could possibly occur, IF an agent is helping out another agent by filling in while on vacation OR showing a home at an open house for another agent. If this happens, the agent must notify the potential buyers as soon as possible, BUT IN ANY CASE, at least PRIOR to signing a purchase agreement so that the buyer does NOT unknowingly give the agent confidential information. Seller Agency 11 Seller agency is usually created by the written listing agreement and is still the most common type of agency relationship. The listing agreement is an employment contract where the seller hires the firm and licensee to bring a ready, willing and able buyer for the property, in return for a commission. HOWEVER, a seller agency also can be formed verbally or by the actions or conduct of the parties. Even though an agency MAY be created in this manner, the broker MAY NOT bring suit to collect a commission UNLESS there is a written listing agreement. The duties of the seller s agent include ALL of the duties the agent owes all parties involved in any transaction: 1. Reasonable skill and care 2. Honesty and good faith 3. Present all offers 4. Disclose all existing material facts 5. Account for all money and property received 6. Provide Law of Real Estate Agency Pamphlet

12 7. Disclose representation of all parties involved UNLESS additional duties are agreed to in writing, the duties of the seller s agent are limited to those above PLUS the following: 1. Loyalty to the seller, taking no action that is adverse or detrimental to the seller s interest in a transaction 2. Disclose any conflicts of interest to the seller in a timely manner 3. Advise the seller to seek expert advise in matters beyond the agent s expertise 4. Do NOT disclose any confidential information from or about the seller even after termination of agency, UNLESS under subpoena or court order. 5. Make a good faith and continuous effort to find a buyer for the seller's property HOWEVER, the agent is NOT obligated to seek additional offers, if there is an existing contract for a sale. The Seller s Agent MAY: Show alternative properties NOT owned by the seller to prospective buyers, and MAY list competing properties for sale without breaching any duty to the seller. Sellers expect their listing agents to represent them, BUT many times the buyer MAY also be willing to enter into a transaction where the agent represents only the seller, as long as it is fully disclosed. Sometimes a buyer will work with a seller s agent because they want: Access to multiple listing inventory Honest information and Their offers presented without committing to a buyer agency The seller s agent must give all effort to promote the interests of the seller The seller s agent MAY still: Fill out offers Present offers AND Help to secure financing FOR BUYERS because these activities are considered to be in the best interests of THE SELLER HOWEVER, this seller s agency must be represented to the buyer in writing in the earnest money agreement. A pamphlet on the Law of Agency must be given to the buyer PRIOR to signing the offer so that the buyer will NOT mistakenly believe that the agent is the buyer s representative. Buyer Agency In recent years, buyers have asked for and benefited from a buyer agency relationship. A buyer agency relationship gives the buyer the advantage of having their own agent to negotiate price and terms and advise them on confidential matters. An agent showing homes cannot be sure of getting paid a commission, if the homes being shown are NOT either listed with the agent's real estate firm, or if they are NOT in the Multiple Listing Service. HOWEVER, if the buyer agrees to pay the buyer's agent if the seller does NOT, the buyer's agent can 12

13 benefit the buyer by spending the time to search out properties such as: For Sale By Owners Open listings Exclusive agency listings Repossessed properties and Properties in foreclosure Divorce OR Probate proceedings Buyer's agents can advise the buyer on: Property value trends Cost of repairs Heating or cooling costs AND provide a Comparative Market Analysis for the buyer Buyer s agents can use their detailed knowledge of the real estate market to negotiate on the buyer s behalf to help the buyer get the best possible price and terms. The duties of the buyer s agent include all of the duties that the agent owes all parties involved any transaction: 1. Reasonable skill and care 2. Honesty and good faith 3. Present all offers 4. Disclose all existing material facts 5. Account for all money and property received 6. Provide Law of Real Estate Agency Pamphlet 7. Disclose representation of all parties in writing PLUS: UNLESS additional duties are agreed to in writing, the duties of the buyer s agent are limited to those above PLUS the following: 1. Loyalty to the buyer, taking no action that is adverse or detrimental to the buyer's interest 2. Disclose any conflicts of interest to the buyer in a timely manner 3. Advise the buyer to seek expert advise beyond the agent s expertise 4. Do NOT disclose confidential information from or about the buyer EVEN after agency terminates UNLESS under subpoena or court order. 5. Unless otherwise agreed in writing, after the buyer s agent has complied with the duties above, the agent must make a good faith and continuous effort to find a property for the buyer. The Buyer s Agent MAY: Show properties that the buyer is interested in to other prospective buyers, without breaching any duty to the buyer. HOWEVER, the agent is NOT obligated to seek additional properties for the buyer while the buyer is a party to an existing contract to purchase OR to show properties when there is no written agreement to pay the buyer s agent a commission. BUT, once the buyer signs an offer to purchase a property, the buyer s agent MAY NOT interfere with 13

14 this relationship by representing other prospective buyers that MAY want to compete for the same property. Most buyers believe that because the agent is working with them, showing them homes, prequalifying, etc., that the agent is the buyer s agent. Under THE REFORM ACT OF 1997 the buyer has a right to presume that the agent is the BUYER'S AGENT UNLESS: 1. The agent is the listing agent (or property manager) 2. The agent is a sub-agent of the seller or landlord (see sub-agency) OR The agent has a written agency agreement with both the buyer and the seller 4. The agent is the seller (or landlord) 5. The parties agree otherwise in writing Example Agent Wendy spends all day showing homes to Mr. Thomas. Wendy does NOT show him any of her own listings, or any properties that she herself owns. She has no written agreement with any other party on these properties. Mr. Thomas presumes that Wendy is representing him. Wendy is the buyer's agent in this case, and she must disclose this in writing PRIOR to the signing of the purchase agreement. This means that buyers should be able to assume that when the agent is showing them homes that are NOT listed with that agent AND rendering real estate services that the agent is indeed the buyer's agent UNLESS there are any of the exceptions listed above. Listing agents showing their own listings still represent the seller because of their duty to procure a buyer. If the agent has a written agreement with ONLY the seller, then the agent represents ONLY the seller, even if the agent also procured the buyer. This must be disclosed in writing PRIOR to signing the purchase agreement. The buyer MAY NOT presume that the agent is representing both the buyer and the seller UNLESS there is a written agreement by all parties. Example Agent Wendy spends all day showing homes to Mr. Thomas, showing him only her own listings. She has a written agreement with the sellers of all of these properties. Mr. Thomas presumes that Wendy is representing him. Wendy is NOT the buyer's agent in this case because she already has an agency with the seller. Wendy should disclose this to Mr. Thomas as soon as she begins rendering any type of real estate service to him. BUT, in any case written disclosure must be made PRIOR to any signing of a purchase agreement. A written agreement is NOT required for a buyer agency. As stated above, the buyer MAY presume there is a buyer agency UNLESS there are EXCEPTIONS. Because a licensee's real estate firm is responsible for the licensee's actions, agents must always be 14

15 aware of the firm's policy with respect to agency and check with the designated broker PRIOR to entering into a buyer's agency. The most common ways to compensate a buyer's agent: Seller-paid fee Retainer Buyer-paid fee The party who pays the agent's commission is NOT automatically the principal or the client being represented. Often, the buyer agency agreement provides that the seller will pay the agent even though the agent does NOT represent the seller. In this case, the seller pays the listing real estate firm, who is allowed to share the commission with a buyer's agent. Most listing agreements have a provision that entitles a cooperating real estate firm who procures a buyer a portion of the listing firm's commission regardless of whom the cooperating firm represents. Some buyer's agents demand a nonrefundable up-front payment, or retainer. Like an attorney fee, this retainer is applied as a credit toward an hourly fee OR to the commission that the firm receives. A written agreement also creates a buyer's agency. PLUS it has the benefit of providing many potential advantages such as: 1. The right to be paid a commission by the buyer, whether or NOT the seller is willing to pay commission. 2. The right to a commission, if the buyer purchases a property that the agent showed them. 3. The buyer's agreement in advance to a dual agency An agreement of a minimum fee is NOT dependent on a seller's commission. Example Agent Wendy spends all day showing homes to Mr. Thomas. Wendy shows him some other company's listings and some "For Sale By Owners." Wendy has a written agreement with Mr. Thomas that she is representing him as a buyer's agent. Mr. Thomas agrees to pay Wendy a minimum of a 6% sales commission whether or NOT the seller pays a commission. Wendy must disclose to the seller in writing that she will be receiving commission from more than one party PRIOR to the parties signing a written offer to purchase. 15

16 Consensual Dual Agency Under THE REFORM ACT OF 1997, a real estate firm who has written agency agreements with both parties MAY represent both clients. HOWEVER, all parties must give informed consent in writing PRIOR to signing an agreement that discloses a change of agency status from seller's and/or buyer's agency to consensual dual agency. PRIOR to signing, both parties must have been given the pamphlet on the Law of Agency disclosing the terms of compensation. The Code of Ethics of the National Association of Realtors states that a Realtor MAY NOT accept compensation from more than one party, even if permitted by law, UNLESS full knowledge of the compensation is disclosed to all parties to the transaction. Because your real estate firm is responsible for your actions, as an agent you must always check with the firm's policy on dual agency PRIOR to entering into this relationship. In-house transactions can create a situation that involves "dual agency." The most common type of dual agency is called pure dual agency. This commonly occurs when two agents from the same firm are each working with a party of a transaction in common and the listing agent has a written listing agreement, and the selling agent has written buyer's agency. In PURE DUAL AGENCY, the broker has dual agency with both buyer and seller. Listing and selling agents have an "employment" relationship with the real estate firm. Listing AND selling agent have a dual agency with both buyer and seller. Because it is natural for the seller to want the highest price and best terms possible, and for the buyer to want the lowest price and most desirable terms possible, the firm representing both parties MAY experience an immediate conflict of interest. It is important that both parties understand and consent to the dual agency. Each party must be counseled to keep to themselves any confidential information that MAY be detrimental, if passed on to the other party. This means that the buyer and seller should NOT reveal any information to the agents or the firm discussing any situations in regard to the transaction. The duties of the dual agent include all of the duties that the agent owes ALL parties involved in any transaction: 1. Reasonable skill and care 2. Honesty and good faith 3. Present all offers 4. Disclose all existing material facts 5. Account for all money and property received 6. Provide Law of Real Estate Agency Pamphlet 7. Disclose representation of all parties in PLUS: UNLESS additional duties are agreed to in writing, the duties of the dual agent are limited to those above PLUS the following: 1. Take no action that is adverse or detrimental to either party's interest in a transaction. 16

17 2. Disclose any conflicts of interest to both parties in a timely manner. 3. Advise both parties to seek expert advice in matters beyond the agent's expertise. 4. Do NOT disclose any confidential information from or about either party even after termination of agency UNLESS under subpoena or court order. UNLESS otherwise agreed in writing, the dual agent is NOT obligated to seek additional offers for the seller while the property is subject to an existing contract for sale. UNLESS otherwise agreed in writing, the dual agent is NOT obligated to seek additional properties for the buyer while the buyer is a party to an existing contract to purchase, OR to show properties when there is no written agreement to pay the agent a commission. The dual agent MAY: Show alternative properties NOT owned by the seller to prospective buyers, and MAY list competing properties for sale without breaching any duty to the seller. Show properties in which the buyer is interested to other prospective buyers without breaching any duty to the buyer. Example Agent Joel shows Mrs. Clark his listing at 1357 Cliff St. PRIOR to this showing, Joel was representing the seller. Mrs. Clark wishes to make an offer on the home, but she wants Joel to represent her. Joel explains that he is the seller's agent, and is representing ONLY the seller, UNLESS BOTH buyer and seller agree to a dual agency in writing. Joel further explains that in this case, he would represent NEITHER party, BUT he would be fair and honest in all dealings, and would NOT impart any confidential information to either party. Mrs. Clark agrees to this. HOWEVER, Joel knows that his real estate firm is responsible for his actions, so Joel first checks with his designated broker in respect to the company's policy. Joel's designated broker agrees, making the designated broker a dual agent. Joel next addresses this issue with Mr. Jones, his seller, and Mr. Jones agrees to a written dual agency and gives up his seller's representation. Joel and the designated broker then proceed with the transaction taking care to keep confidentiality on both sides. Split Agency In-house transactions can create another situation that involves a type of dual agency. This is called split agency. This commonly occurs when two agents from the same real estate firm are each working with a party of a transaction in common. BUT rather than a dual agency where both agents represent both parties, the listing agent has a seller 17

18 agency and the buyer's agent has a buyer's agency. The designated broker is the "dual agent" who will represent both parties. The designated broker has a dual agency relationship with BOTH the buyer and the seller. The listing agent has a seller's agency created by the Listing Agreement with the seller. The listing agent represents the seller. The selling agent has an agency created by the Buyer Agency Agreement with the buyer. The selling real estate firm represents the buyer. BOTH the listing agent and the selling agent have an "employment" relationship with the real estate firm. Under THE REFORM ACT OF 1997, each agent MAY represent his or her client. HOWEVER, the real estate firm must be willing to allow this arrangement AND all parties must agree in writing PRIOR to signing a purchase agreement. It is crucial that the confidentiality of each client is kept. This means that the licensee and the designated broker must take care when discussing any situations in regard to these clients, so that information is NOT passed on to the other side. Because of this possibility, the real estate firm MAY choose to have a policy of pure dual agency (as described in dual agency above) on ALL in-house transactions rather than the "split agency." Example Agent Wendy shows a home to Mr. Thomas. The home is listed with her real estate firm, BUT with another agent named George. Wendy has a buyer's agency agreement with Mr. Thomas, and he wants her to represent him in the offer and purchase of this home. George receives an offer from Wendy and he contacts the designated broker for approval of a split agency representation. The broker agrees with the agent's understanding and agreement to use extreme care and caution. George is the seller's agent, Wendy is the buyer's agent, and the broker is the dual agent in this case. Non-Agency Facilitation A Washington licensee MAY perform real estate services as a non-agent facilitator in a transaction. This means that the agent does NOT represent either party and no agency is created with either. The agent must have a written agreement signed by the buyer to make sure that the buyer does NOT "presume" that there is a buyer's agency. A pamphlet on the Law of Agency must first be given to the buyer. 18

19 The designation of "facilitator" was developed to eliminate common problems with dual agencies in inhouse sales. The facilitator assists the parties in a transaction by communicating and negotiating between them without advocating the interests of either party other than the mutual interest of ALL parties. The facilitator does NOT act as an agent in a transaction, and does NOT owe either party any fiduciary duties. This means that the facilitator CANNOT negotiate a higher price for the seller OR a lower price for the buyer. The major disadvantage is that the parties do NOT have individual representation by their own agent to work exclusively in their best interest. It is also possible that despite all disclosures, the clients MAY NOT understand an agent's duty to treat all parties honestly and to disclose material facts. OR, the party MAY believe that the agent is acting only in the best interests of one party, as opposed to working for the mutual benefit of both parties. The major advantage of the Non-Agency Facilitation type of arrangement is the lack of complexity. Negotiating on behalf of both parties can eliminate confusion and potential conflict. When done correctly, the facilitator arrangement results in a non-adversarial atmosphere that brings the parties together to negotiate with the assistance of the facilitator in a mutual understanding. The facilitator is less likely to be sued for improper representation or for an undisclosed dual agency which could result in lower Errors and Omissions Insurance costs. In addition, the parties MAY benefit by paying reduced fees as a result of fewer services that need to be provided by a facilitator. The real estate firm and the parties to the transaction have no vicarious liability for the acts of the facilitator. Disclosure of Material Facts Under THE REFORM ACT OF 1997, the agent is required to disclose to all parties any material facts" known by the agent that are NOT apparent or readily ascertainable. Material facts are anything that the agent knows about that would: 1. Substantially adversely affect the value of the property 2. Substantially adversely affect a party s ability to perform its obligations in a real estate transaction 3. Operates to materially impair or defeat the purpose of the transaction This does NOT include: Acts Occurrences OR 19

20 Uses that do NOT adversely affect the physical condition of the property or the title to the property. Stigmas or psychological impacts are NOT material facts, BUT, if the licensee knows of any, the licensee must answer honestly if questioned about such. Unless there is a specific agreement to do so, under THE REFORM ACT OF 1997 the licensee owes NO obligation or duty to: 1. Investigate matters that the agent has NOT agreed to investigate. 2. Conduct any independent inspection of the property. 3. Conduct an independent investigation of either party s financial condition. 4. Independently verify the accuracy or completeness of any statement made by either party or any source reasonably believed by the licensee to be reliable. Agents are still required to use good judgment as well as reasonable skill and care in handling transactions. Examples These are NOT considered to be material facts that must be disclosed by the agent: The previous owner committed suicide on the property (NOT adverse to property value or use) The sellers are divorcing and must sell quickly. (NOT adverse to property value or use) The sellers are the agent s relatives. (NOT adverse to property value or use) The adjacent lot is zoned for a mobile home (NOT adverse to property value or use) The roof leaked two years ago and has been fixed, and ceiling has been repainted. (NOT existing) NO DISCLOSURE REQUIRED in these cases. HOWEVER, if asked about any of these conditions, the agent is required to answer honestly, but is NOT obligated to investigate. Additional Examples of Material Facts Examples These are considered to be apparent defects that DO NOT require disclosure by the agent: There is a large hole in the roof visible from inside the living room. (apparent) The driveway is cracked and weeds are growing through them. (apparent) 20

21 The carpeting is worn. (apparent) The windows are broken. (apparent) The kitchen decor needs to be updated. (apparent) HOWEVER, if asked about any of these conditions the agent is required to answer honestly, BUT is NOT obligated to investigate. Examples These ARE considered to be material facts that MUST be disclosed by the agent: An old car had been buried in the back yard several years ago (material defect -could collapse and cause sink hole- if agent knows must disclose) The seller filled in and painted over deep cracks in the basement last week. (seller could be covering material defect- if agent knows of as cover up must disclose) The sewer is NOT connected to the house. (material defect -adversely affects value and use- if agent knows must disclose) Foreclosure papers state that the house will be sold at auction PRIOR to your closing. (material defect -sale could NOT be completed- if agent knows must disclose) FHA appraisal had been performed 30 days ago and came in low. Your sale is also FHA. (material defect -sale could NOT be completed- if agent knows must disclose) DISCLOSURE IS REQUIRED in these cases. These ARE material facts that adversely affect property values and uses and must be disclosed. Termination of Agency The agency relationship is a contract that starts as soon as the agent has engaged in any type of real estate service and terminates upon any of these acts by the parties, whichever comes FIRST: Completion of performance Expiration of the time period specified in the contract Mutual agreement of the parties 21 Termination of the relationship may also be effected by notice from either party to the

22 other. However, such a termination does not affect the contractual rights of either party. Operation of the law also may terminate any agency upon the occurrence of any of these conditions: Death, UNLESS agency survives by a provision that the agreement binds the estate heirs and/or assigns ( NOT common) Loss of property due to foreclosure, delinquent taxes, or sale by the owner under an open listing or exclusive agency Insanity or incapacity to contract Bankruptcy of the principal Loss of principal real estate firm's real estate license by revocation or suspension The duty of confidentiality and accounting continue even after termination by any of these methods. 22 Tying Arrangement A tying arrangement is an agreement to sell a product only on the condition that the buyer is tied in to buying another product. It is illegal, if two or more separate products or services are "tied together" by contract or course of business. A "list back" arrangement usually occurs when a builder wants to save the commission when buying a developer's land, so he/she agrees to list the new houses built with the developer's licensed real estate firm and the commission is waived on the sale of land. If the developer sells a substantial amount of land to the builder involving a large number of new homes, the tying arrangement might be illegal. Usually though, if the developer sells only a few lots, the arrangement would NOT be illegal. Real Estate Firms should have written documentation that forbids the agents from taking part in any antitrust activity. The Real Estate Firms, as a preventive affirmative defense, should require all affiliated licensees to sign the document and keep it in the firm's file. Real Estate Firms should also provide antitrust training and require agent documentation of their completion of the training. Penalties Violations of antitrust laws may result in severe penalties including: Liability for up to 3 times the plaintiff's actual damages AND attorney's fees AND prison terms AND court supervision over the violator's business. Violations of the Sherman Antitrust Act may result in: Fines up to $100,000 and imprisoned up to 3 years for individuals Fines up to $1,000,000 for corporations Violations of the Washington Consumer Protection Act may result in fines of $500,000 for corporations and fines of $100,000 for any other individual. In addition, a person injured by violation of antitrust law MAY sue in Superior Court for an injunction and

23 recovery of costs PLUS up to three times the amount of actual damages. Review The law of agency regulates the: Relationships Duties and Responsibilities of the agent to the principals as well as third parties in a transaction. Over the last decade real estate transactions have become increasingly complex. In the 1990's, buyers and sellers must know about contract legalities, property values, land use, environmental issues, fair housing, home inspections, types of loans, property condition disclosure, and much more. THE REFORM ACT OF 1997 was created to: 1. Interpret the common law of agency as applied to real estate brokers and agents 2. Form legal presumptions of agency relationships with consumers consistent with natural expectations while retaining flexibility for alternative relationships under appropriate circumstances 3. Reduce dual agency 4. Eliminate vicarious liability and imputed knowledge as to consumers An agent is authorized to 'represent' another person who is called the principal Agency can be created by verbal or written contract as well as by an implied agreement. Even though an agency relationship must be voluntary, it is sometimes created unintentionally or accidentally. Implied agency can be created when conduct and words show an intention of agency even though no oral or written contract exists. An agency by ratification is when the principal is aware that unauthorized actions are being taken and the principal accepts by approving or benefiting from the actions. Agency by ESTOPPEL is when a principal allows a third party to believe another person is their authorized agent during a transaction, but later denies that the person was authorized as their agent. BEFORE any party signs real estate documents, the agent must give the party a Pamphlet of Real Estate Agency Law. Real estate agents are special agents of the Real Estate Firm to list, promote, market properties, and function as authorized representatives of the firm. Subagent means that the agent is "an agent of an agent." PRIOR to the reform of agency laws, the agents within the Real Estate Firm's office usually were considered subagents of the firm's clients. Seller agency is still the most common type of agency relationship. A buyer agency relationship gives the buyers the advantage by having their own agent to negotiate the price and the terms of a sale and provide advice on confidential matters. Under THE REFORM ACT OF 1997, a Real Estate Firm that has written agency agreements with both parties MAY represent both clients, if informed consent to a change of agency status is given in writing PRIOR to signing a purchase agreement. In house transactions can create another situation that involves a type of dual agency. This is called split agency. A Washington licensee MAY perform real estate services as a non-agent facilitator in a transaction. 23

24 This means that the agent does NOT represent either party and no agency is created with either party. Under THE REFORM ACT OF 1997, the agent is required to disclose to all parties any material facts" known by the agent that are NOT apparent or readily ascertainable. Antitrust laws affecting the real estate industry prohibit conspiracy to fix prices, such as commissions, commission splits, or fees. The laws also prohibit group boycotts that are intended to harm or destroy a competitor and certain "tying" agreements. A tying arrangement is an agreement to sell a product only on the condition that the buyer is tied in to buying another product. It is illegal, if two or more separate products or services are "tied together" a by contract or course of business causing substantial restriction of competition. Introduction Real estate brokerage is an old business with a wonderful and exciting history. But, it also is a new and ever-evolving business. This course will cover not only real estate laws, but also will address challenges, practices, examples, and processes of, starting up, taking over, purchasing, merging, and operating real estate brokerages. Real estate compensation traditionally has been generated from a commission which is paid at the end of a successful transaction. Today's transactions are more complicated, take longer to complete, and can be more costly than those of yesterday. This presents a greater challenge to the survival of the real estate brokerage. Real estate professionals must continuously educate themselves and become proficient in using new technology to remain competitive and effective. 24

25 We are just beginning to see that the interests of buyers, sellers and licensees may best be served by a method of compensation based more upon the level of expertise, knowledge, effort, and hours of work involved. Independent Contractors and Employees Licensees are the representatives of Real Estate Firms and are required to exercise at least a reasonable degree of skill. 25 The broker, by law, is responsible for the agent s acts within the scope of the agent s authority and the agent is licensed to perform the same duties as the broker EXCEPT managing the office. Whether the agent is representing the broker OR acting a as principal in the sale or purchase on his/her own behalf, the broker is liable, legally and civilly, for all real estate agents licensed with their company regardless of the status. If an agent sells his/her own property, the broker can require the agent to pay a commission as compensation for administration, potential loss of clients and liability, EVEN IF they did NOT list the property with the broker. This applies as well when the agent is buying property offered for sale by owner. The broker is still responsible for these transactions and the agent is actually competing with the broker when selling on his/her own behalf. To determine if an agent is an employee or an independent contractor, depends on the control the broker has over the agent s daily activities. If the broker wants to closely control and direct specific activities, the agent may be considered an employee. Usually the real estate agent fits into the category of the independent contractor. Licensees are virtually always independent contractors in relationship to the client. However, in the relationship between a Real Estate Firm and an agent, the issue of whether the agent is an employee or independent contractor could depend on many factors. It is extremely rare for a Real Estate Firm to pay real estate agents a salary. Nearly all real estate agents work on commission, and under the general direction of their Real Estate Firm created by a formal or informal agreement. The state law does NOT require the contract to be written; however, to create independent contractor status for federal income tax purposes, the Real Estate Firm and agent must enter into a written contract. Typically, the seller is responsible for paying the commission to the listing Real Estate Firm. The

26 listing Real Estate Firm then pays the listing agent and the selling Real Estate Firm. The selling Real Estate Firm pays the selling agent. Commissions are often split four ways. Agents are almost always paid on the basis of results rather than an hourly wage. It is uncommon for Real Estate Firms to control the agent s daily work schedule. They usually are more interested in the end results of the agent s prospecting efforts, listings, sales, closings, and customer service. Independent Contractor Nearly all compensation for real estate services are paid to agents as independent contractors. This means that they pay their own taxes, social security and are hired to perform a particular job using their own judgment in the manner of completion of the job. The Real Estate Firm can control agents to achieve results but this supervision is limited to assuring that the agent s actions are in accordance with legal and ethical standards rather than a sales quota. However, even if an agent is considered an independent contractor for federal income tax purposes, the agent may be treated as an employee under other laws. The Real Estate Firm may require minimum training, scheduled floor time, attendance at sales meetings, and required continuing education courses. They also may enforce the agent to comply with policy, procedure manual and real estate laws, rules and regulations. Under the state license law, the designated broker is responsible for supervising the agent s activities, and may be held liable for the agent s conduct. The Internal Revenue Code The IRS provides that a real estate agent will be considered an independent contractor for federal income tax purposes when three conditions are met: 1. The individual is a licensed real estate agent 2. Substantially all of the agent s compensation is based on commission rather than hours worked 3. The services are performed under a written contract providing that the individual will NOT be treated as an employee for federal tax purposes This means that the Real Estate Firm will NOT withhold income taxes, pay social security or worker compensation premiums, or contribute to the agent s health, retirement or pension plans, although agents can arrange their own retirement plan. The agent would be responsible for any business expenses, license fees, membership fees, and may deduct any business expenses that are NOT reimbursed by the Real Estate Firms. Employees An employee is hired to perform the specific job that the employer requires. 26

27 The employee is hired to follow instructions on how to accomplish and complete the job. Employees are supervised and controlled much more closely than an independent contractor. If the Real Estate Firm has complete control over performance, can specify work hours at a certain place, and gives the agent specific steps they should take to market properties, the agent would probably be classified as an employee. Employees usually are paid a salary with employer deductions for workers' compensation insurance, unemployment compensation, social security, and federal withholding taxes. Various employment and tax laws apply only when someone is hired as an employee, and NOT when someone is hired as an independent contractor. Personal Assistants Personal assistants can be a tremendous help to busy, productive agents. Each Real Estate Firm will have his/her own policies on how personal assistants will fit into the company. The agent should familiarize his/herself with the office policy before hiring an assistant. Personal assistants, licensed or unlicensed, may perform administrative work, computer work, ad layout, general correspondence, taking calls and messages, make appointments, install lock-boxes and signs, etc. A licensed assistant may also show properties and hold open houses and perform the basic functions of an agent. Guidelines for Using Unlicensed Assistants ADOPTED BY THE WASHINGTON REAL ESTATE COMMISSION JUNE 1998 Unlicensed assistants who work under the direct instructions and supervision of a licensed real estate firm or broker may perform the following tasks and duties: may be a greeter at open houses/model units and distribute pre-printed promotional literature and provide security. may act as a courier in delivering documents, picking up keys, or similar services. perform clerical duties such as typing, answering the telephone, forwarding calls, and scheduling appointments for licensees. submit forms and changes to multiple listing services. Obtain status reports on loan progress and credit reports, etc. follow-up on loan commitments after a contract has been negotiated; and pick up and deliver loan documents. obtain public information from sources like government offices, utility companies, title companies, etc. write and place advertising. make keys, install lock boxes, and place/remove signs on property. gather information for comparative market analysis. transport people to properties and/or around areas of interest but may not show, answer questions, or interpret information regarding property, price or condition. 27

28 perform accounting and collection functions such as collecting rents, recording and depositing earnest moneys, security deposits, rental funds and/or computing commission checks. order or perform items of repair and/or maintenance. provide information pertaining to the characteristics of real estate or a business opportunity and the terms or the conditions of a transaction only if that information is prepared in writing and approved in advance by a licensee. Unlicensed assistants must not: engage in any conduct which is "used, designed or structured" to procure prospects. show properties, answer questions, or interpret information regarding property, price, or condition. interpret information regarding listings, titles, financing, contracts, closings or other information relating to a transaction. conduct telemarketing or telephone canvassing to schedule appointments in order to seek clients. fill in legal forms or negotiate price and/or terms. perform any act with the intent to circumvent or which results in the circumvention of the real estate licensing law, RCW or the administrative rules in WAC Assistant Compensation Unlicensed personal assistants are employees and are paid a salary or hourly wage. They CANNOT be paid commission as an independent contractor. Licensed personal assistants may be paid commission OR they may receive a salary plus commission, flat salary OR hourly wage. Home Office Affiliated Licensees Designated Brokers may not use their licenses to enable anyone (licensed or unlicensed) to carry on any brokerage activities unless the licensed designated broker has full management responsibility for all of those real estate brokerage activities. Designated brokers are responsible for supervising the conduct of all managing brokers and brokers licensed to them and for ensuring that all brokerage activities are performed in compliance with the laws set forth in chapter of the RCW. The designated broker will be held responsible for inadequate supervision in all cases of licensee misconduct unless: * The misconduct or rule violation was performed in defiance of specific written policies or instructions provided by supervising broker 28

29 * It has been determined that the designated broker had established reasonable procedures for verifying that adequate supervision was being performed * The designated broker attempted to prevent or mitigate any possible damage as soon as he/she learned of the violation * The designated broker did not ratify or participate in the violation * The designated broker did not make any attempt to avoid learning of the violation A designated broker may not avoid management or supervisory responsibilities by making any type of contract, agreement or understanding with any other person. Whether affiliates operate as independent contractor relationships or on the basis of any other special compensation arrangement instead of working in the capacity of brokerage employees, this is immaterial as regards the designated broker's responsibility for supervision. Any affiliates operating under a real estate firm's license must be under the supervision of the designated broker, who must bear ultimate responsibility for the oversight of their professional conduct. The licensees, on their part, are responsible for: Making sure that the designated broker is kept provided with or kept informed as to the whereabouts and status of all required real estate records, as the designated broker is ultimately responsible for the custody, safety and correctness of entries in those records even in such cases as another person or persons may have been assigned the duties of preparing, keeping custody of or recording those records. The designated broker must ensure accessibility of these records to department auditors and provide copies of required records upon demand by the director or the director's authorized representative, so all licensees are responsible for facilitating this process as it pertains to records of any transactions in which they have been involved. Every licensee bears the responsibility for obtain a copy of and becoming familiar with the rules spelled out in chapter RCW and for keeping current with the rules as they may be changed or amended. Licensees are also responsible for keep the director informed of their current mailing addresses. Licensees operating as teams of licensed and/or unlicensed individuals A recent trend is for a licensee to form his or her own sales team by adding newly licensed agents to the team to serve as an assistant or to serve as a buyer or listing specialist. The team-leader may benefit by being able to train the new licensee in the specific marketing, sales and service strategies of the team and the new agent may benefit from mentoring from the veteran agent. 29 Some agents or agent teams bring in unlicensed assistants who are new to the business. In most states, including Washington, unlicensed assistants are strictly

30 prohibited from performing a number of duties connected to a real estate transaction. The team leader may oversee the team, but the team leader, as well as all licensees in the team are under the supervision of the Real Estate Firm's Designated Broker. Only the designated broker may pay commissions to all licensees under the designated broker. Commissions Splits and Desk Fees All Real Estate Firms want to make enough income to operate their business at a profit. Because the Real Estate Firm's income should be in line with expenses, commission splits are usually based on the services the Real Estate Firm supplies. 30 Some Real Estate Firms pay for the cost of signs, copies, computer services, advertising, forms, supplies, and other items while offering the agent a split. Some Real Estate Firms charge a desk fee and pay a higher split or even 100% of the commission, while the agents pay all of their own expenses. Most agents on a split or desk fee are required to pay for their own cell phones or pagers, association dues, long distance phone charges, business cards, car expenses, mass mailings, personal promotion, and other business expenses. Desk fee agents also may pay for their own forms, errors and omission insurance, advertising, secretarial service, copies, etc. Agents are paid according to the commission contract that they negotiate with the Real Estate Firm. This means that each agent, in the same office could possibly be paid a different split. Most agents are independent contractors and rely solely on commissions based on their production. In this sense, the agent is really in control of their income. It may sound funny, but agents are paid according to their results, so whether their income is extremely high, or very low, they are paid exactly what they earn! Even though most Real Estate Firms have standard policies regarding commission splits, the agent can usually negotiate the split with the Real Estate Firm. Splits are often based on the value of the agent to the Real Estate Firm as well as the value of the services offered by the firm. The written commission agreement should clearly state the services that are provided at the Real Estate Firm's expense and the costs to be paid by the agent.

31 By belonging to the Multiple Listing Service, the real estate agent has a major advantage of sharing listed property information. This helps the agent by exposing his/her listings to all other Real Estate Firm-members who may then show and possibly sell the agent s listing. The listing Real Estate Firm generally receives one half the commission, and the selling Real Estate Firm receives the other one half of the commission. Each agent then splits with their broker according to their contract. Example An agent might negotiate a higher split, if the agent pays all or a portion of office expenses. A high producing agent might be given the right to a draw against earned commissions. An agent with valuable experience in a related field might negotiate a salary plus commission. An agent with a built in client base, such as a builder or architect might negotiate a higher split. A split is a percentage of the gross commission paid to the agent after closing. Most agents start with a 50% split, and eventually can increase up to as high as 100% depending on the agent s production and the Real Estate Firm's policies. Example If the agent s split is 60% of the Real Estate Firm's commission, and the agent lists and sells a property for $150,000 and if the negotiated commission rate were 7%, the agent s portion would be: 1.) 7% commission x $150,000 sale price = $10,500 is the gross commission. 2.) Then, take the $10,500 gross x 60% agent split = $6,300 is the agent s commission. If the agent SOLD the property, but did NOT LIST it (or vice versa) the gross commission is divided by 2. The gross commission also would be split with the other agent s Real Estate Firm: 1.) 7% commission x $150,000 sale price = $10,500 gross commission 2.) Divide by 2 = $5,250 to each brokerage 3.) Then the Real Estate Firm splits with the agent. In this case it is $5,250 x 60%= $3,150 to the agent. The other agent will be paid according to the split with his/her Real Estate Firm. Variations in Commission Splits There are many different variations in commission splits and fees depending on the agent s level of experience or production as well as the Real Estate Firm's services. Example 1. As an incentive for a faster sale, the listing agent s normal split of 60% could be raised to 70%, if the listing sells within 45 days. 2. The sales side and listing side could be a higher split on in-house listings. 3. The agent could be paid a higher percentage based on the increase in production as a bonus. Example: Graduated Commission $ Paid to Real Estate Firm Agent Firm $0 - $12,500 = 50% 50% $12,501- $15,000 = 55% 45% $15,001- $18,000 = 60% 40% 31

32 $18,001- $21,000 = 65% 35% $21,001 and over = 70% 30% 100% Commission and Desk Fees Not all agents prefer to work on commission splits. Because commission split contracts usually expire at the end of each one-year period, the agent has to start over at a lower split and again build it up with increased production. However, the agent has no overhead to pay during closings and the Real Estate Firms often pays most of the agent s costs. Higher producing agents sometimes prefer to work for companies that pay the agent 100% of the commissions they earn in return for a desk fee. Rather than splitting the commission on a percentage basis, the broker charges a "desk fee" to cover the broker's costs. The agent usually pays the broker a set fee, PLUS pays for all advertising, marketing, secretarial services, assistance, and other expenses. The agent benefits by receiving 100% of the broker's commission. The broker benefits by receiving the desk fee and payment for the expenses each month. The broker would know how much income to expect each month based on desk fees. The broker has the responsibility to train, supervise and to review the paperwork of all agents licensed under his/her license whether they pay a desk fee or if they are on a split. Paying a desk fee is legal as long as the broker isn t evading the responsibility to supervise the agents and the agents do NOT act independently of the broker s control by hiring a broker. A common charge, in addition to the desk fee, is the transaction fee. This fee covers the cost of administration such as secretarial assistance with the sale. Desk fee agents also normally pay for all of their own forms, supplies, copies, etc. One drawback is the difficulty of tracking these costs and that this could actually cause the agent to be reluctant to use necessary services that could have increased production. The broker may offer a varying split, paying some agents: 50% - no desk fee OR 75% - one half of the desk fee OR 100% and full desk fee Split or Desk Fee Commissions When a licensee licensed to another Real Estate Firm sells the listing firm's listed property, the listing Real Estate Firm normally shares one half with the selling Real Estate Firm upon being paid. 32

33 Even if the selling Real Estate Firm represented only the buyer, the listing Real Estate Firm may still pay the selling Real Estate Firm from the proceeds of the total commission although the seller has paid it. The broker can be paid by more than one party, if it is disclosed to all parties in writing. Real estate commissions are always negotiable between Real Estate Firm and seller and there are no regular, normal, set, or fixed commission rates. Brokers with Less Than 2 Years Experience Within Washington real estate law, RCW provides that: "(6) During the first two years of a broker's licensure, a managing broker must provide a heightened level of supervision as provided by rule of the director." This emphasized portion of the law places specific responsibilities on the newly licensed broker for the first two years of licensure. The rules established by the Director referred to in the law are found in the Washington Administrative Code, WAC 308. WAC C-145 addresses this requirement for heightened supervision during the first two years. Broker responsibilities (with less than two years experience) include, but are not limited to: (1) All the responsibilities listed in WAC C-140 (2) Being subject to a heightened degree of supervision for the initial two years of licensing which includes: (a) Participating in all required reviews of real estate brokerage agreements and services by the designated broker or appointed managing broker. (b) Submitting evidence of completion of department required clock hour education courses to the designated broker or appointed managing broker. (c) Securing advice or assistance from the designated broker or appointed managing broker when offering brokerage services beyond the broker's level of expertise. (d) Timely submission of brokerage service contracts, documents and funds to the appropriate managing broker or designated broker. It is therefore the responsibility of the Designated Broker to assure that a broker, during the first two years of licensure, is clear about these responsibilities and monitors and provides opportunity to meet each of these rules. Supervision of Licensees Washington Real Estate License Laws protect buyers and sellers by regulating the activities of real estate licensees and requiring that licensees demonstrate a degree of competence in handling 33

34 transactions. All licensees MUST comply with these laws and regulations, OR their licenses can be revoked. The real estate license not ONLY gives agents legal authority to handle real estate transactions for others, BUT also serves as an implement for the enforcement of real estate law and regulations. A real estate license can be revoked OR suspended, if an agent fails to comply with the law. It is illegal for a person to perform as a real estate agent without a license, OR to bring a lawsuit to collect a commission as a real estate agent, without being licensed before the actual service was performed. The rules and regulations that govern real estate licensees have the same effect and force as the law. Types of Licenses It is against the law to act as a real estate firm, designated broker, managing broker, or broker without first obtaining the appropriate license. There are differences in responsibilities of the three main types of real estate licenses. Only a licensed real estate firm is authorized to operate a brokerage business and represent clients. A real estate firm may be licensed as a natural person OR an artificial person such as a corporation OR partnership. Managing brokers and brokers are NOT authorized to work on their own, BUT ONLY when licensed as a representative of a real estate firm. A managing broker also is authorized to manage a branch office for the Real Estate Firm. Unlike the Real Estate Firm's license, the designated broker s OR managing broker s license, OR broker's license may ONLY be issued to a natural person. Real estate license laws apply NOT ONLY to the firm, BUT ALSO to the designated broker OR managing broker, OR broker when acting on behalf of another person, OR when acting on their own behalf. A broker represents the real estate firm as an agent of the Real Estate Firm and performs real estate brokerage activities under the supervision of a Managing broker or Designated Broker. A Managing Broker, is a licensee affiliated with a Real Estate Firm to represent and work under the firm s license and under the supervision of a Designated Broker and may work as an agent for the firm, OR may manage a branch office of the firm. A Managing Broker has satisfied the licensing requirements to be a Managing Broker: Works for another licensed designated broker as an agent OR branch manager 34

35 May have license reissued as a designated broker s license to open own brokerage Real Estate Designated Broker A Real Estate Designated Broker is the responsible broker of a real estate firm. The designated broker of a real estate business is defined as a person, acting on behalf of another person for compensation that usually is paid as a commission. The designated broker can be paid: Commissions OR by other kinds of Compensation OR by the Promise of other compensation A designated broker is a natural person authorized: To operate a brokerage And represent clients in real estate transactions The designated broker: Is the responsible broker for a firm Is responsible for ALL licensees of the brokerage Only the responsible broker may legally accept commissions OR compensation from clients OR other firms. A Managing Broker working under the Designated Broker s license: May operate a branch office for the Designated Broker BUT the Designated Broker is still responsible for the managing broker as an affiliated licensee. The Designated Broker is authorized to hire Brokers and Managing Brokers to be representatives of the firm, while working under the Designated Broker s license. The Real Estate Firm through its affiliated licensees negotiates OR offers to list, sell, buy, exchange, lease, OR rent: *Real estate for others *Used mobile homes on land for others (NOTE: After June, 1998, new manufactured homes in conjunction with leased or owned land also will be included) *Business opportunities for others OR Advertises OR publicizes that he/she is involved these transactions OR Procures prospects to engage, direct OR assist in the negotiation OR closings of these transactions The laws also apply to a licensee acting on his OR her own behalf. This means that real estate agents are required to comply with the license law even when buying, selling OR leasing property for themselves - as well as when they are representing others. The Designated Broker is responsible for the supervision of the activities of ALL licensees under the Designated Broker s license. The Designated Broker should make sure that ALL affiliate licensees are familiar with the Firm s policies and procedures. Affiliate Licensees are: Brokers & Managing Brokers 35

36 They MAY NOT accept commissions OR ANY other compensation from anyone other than their own Designated Broker. It is CRUCIAL that ALL licensees represent the Designated Broker in an: Ethical Legal and Professional manner Designated Broker authority to delegate duties to Managing Brokers and Branch Managers The Designated Broker may delegate by written agreement the duties of safe handling of client funds, maintenance of trust accounts, and transaction and trust account records, along with supervision of brokers, to a Managing Broker licensed to the firm. The Designated Broker MUST maintain a record of the firm's Managing Brokers and any such delegations made to Managing Brokers. This authority to delegate these duties is consistent with another important part of the same section of the law permitting this delegation that all licensees should be aware of. Paragraph 2 of RCW says: "Listings, transactions, management agreements, and other contracts relating to providing brokerage services are property of the real estate firm. Brokers shall timely deliver to their appointed managing broker all funds and records required to be held or maintained by the real estate firm. A managing broker is responsible for such funds and records only after they are received from the broker. A managing broker shall timely deliver to the designated broker all funds and records required to be held or maintained by the real estate firm. The designated broker is responsible for such funds and records only after they are received from the managing broker or broker." A broker has a direct line of responsibility to his Designated Broker for all funds and records pertaining to the broker's transactions. A properly appointed Managing Broker may intercede in this line of authority to enable the broker to meet his or her duty under the law. Funds and records relating to a real estate transaction represent a trust from the principals in the transaction to their agents and must be handled as required under the law. A Designated Broker must stand ready to receive the funds and records or delegate such authority in writing to a licensee bearing Managing Broker credentials. WAC C-125 specifies certain rules for delegations: (8) Maintaining up-to-date written assignments of delegations of managing brokers and branch manager duties. The delegation agreement(s) must be signed by all parties to the agreement. Delegations must: (a) Only be made to managing brokers licensed to the firm. (b) Address duties of record maintenance, advertising, trust accounting, safe handling of customer/client funds and property, authority to bind, review of contracts, modify or terminate brokerage service contracts on behalf of the firm, supervision of brokers and managing brokers, and 36

37 heighten supervision of brokers that are licensed for less than two years. (c) Address hiring, transferring and releasing licensees to or from the firm. Property Management Activities There are very few exceptions to the License Law regarding property management. The few exceptions apply to non-licensed individuals. A broker who is managing property MUST have a written: Property management agreement with the owner, and keep a copy of ALL Summary statements and records There are NO exceptions in the license law for licensees that perform ANY property management services. The designated broker has total responsibility and liability for ANY property management performed by agents licensed under the designated broker. Any property management that is performed by a licensee MUST be under the supervision of the designated broker. The designated broker is responsible to keep required records and trust accounts that comply with the Real Estate Program of Department of Licensing. Most errors and omissions insurance policies exclude property management activities from coverage of real estate brokerages. It is important for the designated broker to have a written policy concerning property management activities of the agents, and that the agents are familiar with the policies. HOWEVER, the designated broker still has full responsibility for the activities of the representative. Temporary Permits If the designated broker is: Deceased OR Incapacitated The Director may issue a temporary broker's permit to a legally accredited representative of the broker. This could be a: Qualified salesperson in that office OR Other qualified representative of the deceased OR incapacitated broker. The temporary permit is valid for NOT more than four months. In a partnership OR a corporation, the same rule applies to whom a temporary broker's permit may be issued. License Renewal 37

38 Licenses MUST be renewed every two years. A natural person s real estate license expires on his/ her second birthday after the issuance of the first license. The licensee MUST apply for renewal and pay a renewal fee. After the first renewal, the license MUST be renewed every two years on OR before the licensee's birthday. If the renewal application is late, the licensee MUST pay a penalty in addition to the renewal fee. To renew a salesperson license, the licensee MUST complete 30 clock hours of approved continuing education courses. For a first renewal, a salesperson MUST have also completed a 30 clock-hour course in real estate practices. First renewal requires: 30 clock-hour course in real estate practices PLUS 30 clock hours of continuing education Subsequent renewals require 30 clock hours of continuing education. Corporations and partnerships MUST also renew their real estate licenses every two years. The renewal date for a corporate OR partnership license is two years from the date the license was issued. A single renewal fee is charged for the firm and the designated broker. To renew their licenses, real estate licensees MUST provide proof to the Director that they have successfully completed a total of thirty clock hours of instruction, every two years, in real estate courses that are approved by the Director. Continuing Education Requirements Active Licenses The Real Estate Commission provides a list of approved continuing education courses. If a licensee took a course to fulfill the pre-license requirements (either a salesperson's OR a broker's) OR to fulfill the requirements for reinstatement, the licensee also cannot use the course for the continuing education requirement. This means that if a licensee took a 30-clock hour course in Real Estate Law for the pre-license requirement for a broker s license, the Real Estate Law course also cannot be used for renewal. Continuing Education Requirements To Renew The Real Estate Commission provides a list of approved continuing education courses. All brokers and salespersons MUST submit proof that they have successfully completed a total of 30 clock hours of approved continuing education courses. A minimum of 15 of the 30 clock hours MUST have been completed within 24 months before the license renewal date. If the licensee completes more than the 30-hour requirement, up to 15 hours can be used for the next two-year renewal. 38

39 As of January 1, 1991, examinations will NOT be required when a course is taken for the continuing education requirement. Examinations are ONLY required for pre-licensing courses for the salesperson OR broker s license requirement. Cancellation / Reinstatement If the director does NOT receive the license renewal fee for a renewal license within one year after its expiration date, the license is canceled. A person whose license is canceled in this manner must obtain a new license by satisfying the procedures and requirements as prescribed by the director by rule. The rules are found in WAC Section 308 and may vary from time to time. Currently, according to WAC Section A-780 : "Any person desiring to be reinstated as a real estate licensee within two years of cancellation may have their license reinstated by satisfying either of the following options: (1) Submission of an application to the director providing proof of the following: (a) Successful completion of sixty clock hours of approved real estate course work completed within one year preceding the application for reinstatement. A minimum of thirty clock hours must include real estate law; (b) Payment of all back renewal fees with penalty at the current rate; and (c) Payment of a reinstatement penalty fine of one hundred dollars; or (2) Satisfy the procedures and qualifications for initial licensing, including the following: (a) Successful completion of any applicable licensing examinations; and (b) Successful completion of required courses pursuant to RCW and/or , whichever is applicable, within three years preceding the application for reinstatement. (3) Former licensees canceled for nonpayment of fees for periods in excess of two years will be required to satisfy the requirements of subsection (2) of this section. In other words, if more than two years have elapsed since the license was canceled, the license cannot be reinstated unless the former licensee repeats the qualifications for initial licensure. This means completing ALL educational requirements and passing the license exam again. Because of the requirement to pay ALL back fees and penalties, starting over could actually be an advantage. Inactive Licenses When a licensee has temporarily turned their license over to the Director, the license becomes inactive and the individual is considered to be unlicensed. 39

40 During this inactive period, the individual is NOT allowed to become involved in ANY activity requiring a license, BUT is still subject to the enforcement of disciplinary action for violations of the license law. Inactive licenses MUST also be renewed every two years, BUT continuing education is generally NOT required. Licensees are NOT allowed to use an inactive status to avoid the continuing education requirement. A 30 clock-hour course in real estate practices may be used to activate an inactive broker s license as well as satisfy the requirements for the first renewal of an active license. Licensees that have an inactive status for more than three years MUST have completed a 30 clockhour real estate course within one year before the application for active status. If the licensee does NOT renew the inactive license prior to the renewal date, the license is subject to cancellation in the same manner as an active status license. All active OR inactive licensees are required to notify the Director of ANY name change OR change their home address. It is NOT necessary to notify the Director of a change in marital status unless there is a name change. Supervision of Affiliated Licensees The State closely regulates the real estate licensee s compliance with real estate licensing laws and rules. Real estate licensing laws and regulations cover: The operation of brokerage businesses Supervision of agents The handling of funds The conduct of ANY: Broker Managing Broker OR Branch Manager is covered by real estate law, and is the responsibility of the Designated Broker they are licensed under. In addition to the Designated Broker, the Branch Manager shall bear responsibility for Brokers and Managing Brokers operating under the Branch Manager at a branch office. This means that the Designated Broker is responsible for the proper supervision of ALL: Brokers Managing Brokers and Branch Managers that are licensed with that Designated Broker. Violation of these laws and regulations will result in disciplinary action by the Department of Licensing. The Designated Broker MUST be responsible primarily for managing and supervising the brokerage, and CANNOT avoid responsibility by making an arrangement with another person. A licensed Managing Broker or Designated Broker who allows someone else to operate a real estate brokerage firm under his/her name for a fee is referred to as a fee broker. 40

41 It is ILLEGAL to operate as a fee broker, even if the Managing Broker or Designated Broker does NOT actually receive a fee OR other compensation. Liability for Violations If the Designated Broker fails to properly supervise the licensees affiliated with him/her, the Designated Broker may be liable for their actions. The Director may suspend OR revoke the Designated Broker's license, as well as impose other possible consequences. The Designated Broker may NOT be held responsible for inadequate supervision, if: The Designated Broker established reasonable procedures to verify that there was adequate supervision The licensee's violation was an act that was contrary to the Designated Broker's specific written policies OR instructions The Designated Broker attempted to mitigate ANY damage caused by the violation as soon as it was learned The Designated Broker did NOT participate in OR ratify the affiliated licensee's conduct The Designated Broker did NOT try to avoid learning of the violation Even though the Designated Broker may have procedures and policies in place, if the affiliated licensee's actions cause harm to a client OR customer, the injured party may still sue the Designated Broker. HOWEVER, if there was adequate supervision and the Designated Broker took action to mitigate ANY damages caused by the licensee s violation, the Designated Broker is NOT to be subject to disciplinary action. Affiliation and Termination Broker OR Managing Broker licensees may perform real estate activities ONLY when affiliated with a Real Estate Firm and under the Designated Broker's supervision. Brokers AND Managing Brokers MAY NOT accept compensation for licensed activity from anyone BUT the Designated Broker. The Designated Broker holds the affiliate licenses on display in the office address shown on the licenses. The affiliated licenses will cease to be in force, if the licensee ceases to represent the Designated Broker. Either the Designated Broker OR the Broker OR Managing Broker may terminate the relationship at ANY time. To give notice of termination the Designated Broker will sign the license and mail OR hand deliver it to the Department of Licensing OR the affiliated licensee may surrender the license on his/her own. The Designated Broker MUST notify the Director and surrender the individual's license without delay and without imposing conditions before surrendering the license. 41

42 Failure to surrender a license promptly is grounds for disciplinary action against the Designated Broker. If the license is NOT surrendered, the licensee should notify the Department of Licensing in writing. If the license is lost, the Designated Broker and the affiliate licensee MUST submit a lost license affidavit provided by the Department. When a Broker OR Managing Broker has been terminated because of conduct that would be grounds for disciplinary action under the license law, the Designated broker MUST send the Director a written statement of the facts surrounding the termination. The effective date of termination is the date the license was postmarked OR was hand delivered to the Department. The license is placed on an inactive status until the Broker OR Managing Broker becomes licensed with a new Real Estate Firm under a new Designated Broker and a new license is issued. Any license that is NOT on display in the Real Estate Firm's office becomes an inactive license and MUST be returned to Director. Requirements for Operating a Broker s Office Every licensed real estate firm must have and maintain an office or records depositories accessible in this state to representatives of the director. The firm must maintain and produce a complete set of records as required by this chapter. The director may prescribe rules for alternative and electronic record storage. The Designated Broker s license and ALL licenses of the firm's affiliated licensees MUST be prominently displayed. A firm may have one OR more branch offices under the same name. The names can be different from the main office, if the Director approves them, as long as each branch office is clearly identified as a branch of the main office. HOWEVER, the firm may NOT have branch offices under more than three names. The names of the branch office and the main office MUST clearly appear on a sign identifying the office. The names MUST also appear on ALL: Advertisements Letterhead stationery Forms and Signs used by the real estate company. Branch Office A real estate firm may have one OR more branch offices. The Designated Broker will be issued a duplicate license under the same name as the Real Estate Firm for each branch office showing the location of the main office and the particular branch. The Designated Broker s license MUST displayed in the main office and each duplicate license 42

43 MUST be displayed in the branch office along with the licenses of affiliated licensees. The address of the office should be the same address shown on the license. The Designated Broker does NOT need a branch office license where real estate sales activity is conducted at one particular subdivision OR tract, if the main OR branch office is within 35 miles of the subdivision OR tract. Broker s Residence Office A broker may maintain an office in his/her residence, if the following conditions are met: The home office MUST the same as any office: Be identified at entrance - sign visible to the public Be reasonably easy to find by street address Meet local zoning ordinances concerning home offices OR signs Change of Location The real estate designated broker of the firm shall submit within ten days a completed change of address application to the real estate program together with the return of all licenses, completed transfer applications, and payment of the correct fees. Worker's Compensation Insurance Workers' compensation provides no-fault industrial insurance coverage for most employers and workers in Washington State. Benefits include medical treatment for workers who are injured in the course of their employment or develop an occupational disease as a result of their work activities. Workers who are unable to work due to accepted conditions related to an industrial injury or occupational disease may be eligible for partial wage replacement benefits. The Washington State Department of Labor and Industries administers the Worker's Compensation program and has determined that real estate brokerages are subject to contributions to the fund. The Department monitors experience and sets the rates paid for coverage. Advertising A firm must operate under their firm name or an assumed name as licensed. All advertising or solicitations without limitation for brokerage services, to include the internet-based advertising, web pages, , newspaper, and other visual media must include the firm name or an assumed name as licensed. All real estate advertising MUST be truthful. It MUST NOT mislead the public and real estate brokers and agents MUST include the firm's name as it appears on his/her license. A blind ad refers to an ad that does NOT show the firm s name and is a violation of the license law. It is NOT a violation, HOWEVER, if a licensee advertises to sell OR lease his/her own real property without the firm s name as long as the ad discloses that the owner is a real estate licensee. 43

44 A licensee can do business under an assumed name so long as they are licensed under that assumed name. Presenting Offers, Counteroffers and Addenda The Designated Broker's supervision includes overseeing that all licensees under his or her Designated Broker's license obey the license law and the law of agency, and requiring the licensee to immediately present ALL offers to the seller. The licensee MUST give the buyer a copy of the offer after the buyer signs it. Once the seller accepts the offer and signs it, the licensee MUST give a copy to the seller. The buyer then MUST be given a second copy with the seller s signature as evidence of the seller's acceptance. In order to have a VALID contract, there MUST be: Offer Acceptance Notification of acceptance A copy of the transaction MUST be kept in each participating Designated Broker's transaction records. The license law does NOT say which agent should present the offer, BUT most Multiple Listing Associations have bylaws regarding the procedure for presenting offers in a cross sale. These rules will vary from area to area. It is usually best for the seller and the buyer when BOTH the listing and selling agent are there to present the offer. The selling agent can then explain the advantages of the offer and provide the qualifications of the buyer. This way, the listing agent can make the presentation to the seller (privately, if desired) to answer questions and point out the advantages and disadvantages. This can be very helpful especially when the seller is inexperienced in real estate matters and can benefit from guidance that agents with different viewpoints to present. When writing an offer to purchase, the licensee MUST disclose in writing on the earnest money receipt and to the seller before acceptance, if other than cash OR its equivalent was accepted as earnest money. When writing an offer, the licensee MUST disclose in writing the agent s license status when: Buying Selling OR Leasing ANY interest in real property, either directly OR through a third party. 44

45 When writing an offer, the licensee MUST disclose in writing to ALL parties, if the agent charges OR accepts compensation from more than one party in the transaction. A Licensee May Not: Accept, receive OR charge ANY undisclosed commission, rebate OR direct profit on ANY expense payment made for the principal. Direct a transaction to a lender OR escrow company in return for a kickback OR rebate, UNLESS it has been first disclosed in writing to the principal. Knowingly OR negligently make, OR allow to be made, ANY material false statements, descriptions OR promises on behalf of the principal OR him/herself. Intentionally OR negligently delay performance. The agent MUST perform ALL required duties as quickly as possible, and MAY NOT engage in ANY conduct that demonstrates: Bad faith Dishonesty Untrustworthiness OR Incompetence The Licensee is Required: To present ALL offers to seller: No matter what the offer is And without the regard to the licensee s opinion A professional and ethical agent NEVER attempts to make a decision for a seller OR tries to predict what sellers might decide to accept OR reject. When more than one offer is written, the listing agent MUST take care to act in the best interest of the seller. The agent MUST present ALL offers simultaneously to the seller rather than in the order they were received. It is NOT in the best interest of the seller nor is it suggested that the seller accepts OR rejects one offer BEFORE the next offer can be presented. It is the agent s responsibility to present ALL offers as soon as possible so sellers may make choices that are most advantageous to their needs. It is the Designated Broker's responsibility to review ALL licensee transactions and keep adequate records for the required period of time. The real estate agent MUST stay on top of the closing process to make sure that any problems are quickly solved. The agent MUST stay in close communication with the buyer, seller and closing attorney to make sure that necessary tasks such as submitting loan applications, ordering title reports, performing inspections, and completing repairs are done on time. The role of the Designated Broker and agent is to provide complete and accurate information to the escrow agent. The purchase and sale agreement should be detailed, using correctly spelled names, addresses, and phone numbers of the buyers and sellers, PLUS It should include a clear and accurate legal description as well as the street address, information on insurance, reserve accounts, assumption information, lender OR escrow company names, account numbers, etc. 45

46 All offers are required to be submitted to the seller until one has been accepted. A purchaser may withdraw an offer at any time before the seller has accepted it. It is necessary that the buyer sign the acknowledgment indicating that they have been notified that the seller has in fact accepted their offer. Although it is not legally required that the buyer sign this acknowledgment for the contract to be binding, as long as some form of oral or written notice has been given, it is certainly the preferred method to prove notification to the buyer of the seller's acceptance. Be sure to mention any personal property items that are to be transferred to buyer as a part of the sale. Many items are noted in the standard language portion of the purchase agreement, but be sure that all negotiated items are included (such as drapes and/or window coverings, appliances, etc.). Full disclosure is required when the buyer or the seller is a licensed real estate agent or an officer, employee or associate licensed to a corporation licensed as a real estate firm. If the agreement involves ANY real estate licensee be sure to insert the appropriate statement into the purchase agreement: *Buyer/Seller acknowledge that buyer/seller is a licensed real estate agent in the State of Washington. *Buyer/seller acknowledges that the principals of the buyer/seller are licensed real estate agents in the State of Washington. Make sure that if there are any contingencies, that you get signed addenda removing them per the dates required in the purchase agreement. Be sure the seller's property disclosure statement (sometimes called a property condition checklist) is signed by all parties or waived in writing. Be sure to attach any and all addenda, acknowledgments, or notices signed by the parties and noted as an integral part of this agreement. Discrimination Any violation of a state OR federal anti-discrimination law is also a violation of the license law. The license law prohibits licensees from ANY action that involves discrimination on the basis of race, color, creed, sex, marital status, familial status, age, national origin, OR the presence of ANY sensory, mental, OR physical handicap. The license law also prohibits discrimination on the basis of race, color, creed, OR national origin in hiring practices OR sales activity. Disciplinary Procedures The Director is required to investigate if a verified written complaint of the actions of a real estate licensee is received, and impose sanctions including the suspension OR revocation of license for violations of the license law. 46

47 The Director may also investigate based on his/her own motion. The law applies whether licensees act on behalf of another person OR on their own account, and whether OR NOT the license is active OR inactive. The procedures involving disciplinary action require that the licensee be given notice of the charges, and an opportunity to present a defense. Hearing A copy of the order for the hearing setting the time and place and a copy of the verified statement MUST be served on the licensee NOT less than twenty days before the hearing date. Counsel may represent the department of licensing, the licensee accused, as well as the person making the accusation. The hearing will be held on the scheduled date whether OR NOT the licensee shows up. Although the Director can hold the hearing, an administrative law judge also may conduct it. The Department and the licensee will each present evidence and testimony, cross-examine the witnesses, and present their arguments. A court reporter will be present to record a transcript of the proceedings. The accused MUST pay for a copy of the transcript of the hearing. The licensee also is required to post a $500 appeal bond to cover court costs, if the judge decides against the licensee. Any violation of the license law is grounds for disciplinary action. Designated Brokers OR Managing Brokers OR Brokers who fail to comply with ANY of the license laws could lose their license. If the accusation is proved, the Director may impose ANY of the sanctions permitted under the license law. The sanctions are effective ten days after mailing a copy of the Director's order to the licensee. The license law gives a list of conduct and activities that are grounds for disciplinary action against a licensee. Grounds for Disciplinary Action A licensee is subject to disciplinary action for: Obtaining a license by means of fraud, misrepresentation OR concealment Being convicted of forgery, embezzlement, extortion, fraud, OR similar offenses PLUS Making false statements if the licensee knew (OR could have known using reasonable care) Converting trust funds to own use Failing to disclose information OR to produce records for inspection upon request by the Director PLUS Selling real estate with a plan that endangers the public interest, after the Director objected in writing Committing fraud OR dishonest dealing OR a crime involving moral turpitude PLUS 47

48 Accepting money from more than one party without first disclosing to ALL parties in writing Accepting a profit on expenses made for a principal without disclosing it to the principal Accepting compensation for an appraisal contingent on reporting a predetermined value Issuing an appraisal for property in which he/she has an interest without disclosing that interest in the appraisal report Falsely claiming membership in a state OR national real estate association Directing a principal to a lender OR escrow company in return for a kickback, without disclosing to the party represented Buying, selling, OR leasing property (directly OR through a third party) without disclosing that he OR she holds a real estate license Any conduct in a real estate transaction which demonstrates bad faith, dishonesty, lack of trustworthiness, OR incompetence Penalties for Violations License suspension OR revocation Denial of application OR renewal Fines up to $1,000 per violation AND Relevant real estate course requirement Cease and desist order Criminal prosecution -gross misdemeanor ALL fines collected are placed in the real estate education program account, to be used for education for the benefit of licensees. Appeal The licensee OR the director may file an appeal in superior court, if dissatisfied with the outcome of a disciplinary hearing. The appeal MUST be filed within 30 days of the date of the Director's decision and order. Until the appeal is decided, ANY sanctions would be delayed. Cease and Desist Order The Director may issue a cease and desist order to prevent the possible continuation of an illegal activity. When the Director can show that a delay would result in irreparable harm to the public, the Director may authorize a temporary cease and desist order before the hearing, BUT ONLY under this special circumstance. The licensee MUST be notified of the right to request a hearing to determine, if the order should be canceled, modified OR made permanent. Unless the licensee requests more time, the Director MUST hold the hearing within 30 days. The Director also may ask a court to issue an injunction to stop an ongoing violation, and until the hearing is held, the court could appoint a receiver to close OR take over a real estate brokerage 48

49 operating in violation of the law. Criminal Prosecution If the Director files charges against a licensee, the prosecuting attorney in the county where the violation is alleged to have occurred would handle the case. The Director can ask the State Attorney General to prosecute, if the prosecutor fails to take action. Violations of the license law are gross misdemeanors. Civil Liability If a licensee s actions OR failure to act has injured a person, a civil lawsuit can be filed for damages. The Director does NOT have the power to award damages. Compensation for injured parties is handled through the court system. Notifying Department of Legal Action A licensee is required to notify the Department of Licensing within 20 days after first learning of: A criminal complaint, information, indictment, OR conviction in which the licensee is named as a defendant OR A civil court order, verdict, OR judgment entered against the licensee, if the case involves ANY real estate OR business activities. License Suspension The director MUST suspend the license of ANY person who has been reported to the director for nonpayment OR default on a federally OR state-guaranteed educational loan OR service conditional scholarship. Prior to the suspension, the agency MUST give the person an opportunity for a brief proceeding and issue a finding of nonpayment OR default on a federally OR state-guaranteed educational loan OR service-conditional scholarship. The person's license will be reissued when the person provides the director with a written release issued by the lending agency stating that the person is making payments on the loan in accordance with a repayment agreement approved by the lending agency. If the person has continued to meet ALL other requirements for licensure during the suspension, the reinstatement will be automatic upon receipt of the notice and payment of ANY reinstatement fee the director may impose. Policy Manual Requirements Chapter 8 covers Policy Manual development in detail. The licensing law requires certain elements to be covered. They are (a) Referral of home inspectors in compliance with Washington Administrative Code. 49

50 (b) Levels of supervision of all brokers and managing brokers of the firm. (c) The review of all brokerage service contracts which involve any affiliated licensee of the firm that has been licensed for less than two years. This review must be completed by the designated broker or their delegated managing broker within five calendar days of client's signature and shall be evidenced by the reviewer's initials and date on the first page of the documents. A comprehensive Policy Manual is a first line of defense for the effective management of brokerage business. Review The law of agency regulates the: Relationships Duties and Responsibilities of the agent to the principals as well as third parties in a transaction. Over the last decade real estate transactions have become increasingly complex. In the 1990's, buyers and sellers must know about contract legalities, property values, land use, environmental issues, fair housing, home inspections, types of loans, property condition disclosure, and much more. THE REFORM ACT OF 1997 was created to: 1. Interpret the common law of agency as applied to real estate brokers and agents 2. Form legal presumptions of agency relationships with consumers consistent with natural expectations while retaining flexibility for alternative relationships under appropriate circumstances 3. Reduce dual agency 4. Eliminate vicarious liability and imputed knowledge as to consumers An agent is authorized to 'represent' another person who is called the principal Agency can be created by verbal or written contract as well as by an implied agreement. Even though an agency relationship must be voluntary, it is sometimes created unintentionally or accidentally. Implied agency can be created when conduct and words show an intention of agency even though no oral or written contract exists. An agency by ratification is when the principal is aware that unauthorized actions are being taken and the principal accepts by approving or benefiting from the actions. Agency by ESTOPPEL is when a principal allows a third party to believe another person is their authorized agent during a transaction, but later denies that the person was authorized as their agent. BEFORE any party signs real estate documents, the agent must give the party a Pamphlet of Real Estate Agency Law. Real estate agents are special agents of the Real Estate Firm to list, promote, market properties, and function as authorized representatives of the firm. 50

51 Subagent means that the agent is "an agent of an agent." PRIOR to the reform of agency laws, the agents within the Real Estate Firm's office usually were considered subagents of the firm's clients. Seller agency is still the most common type of agency relationship. A buyer agency relationship gives the buyers the advantage by having their own agent to negotiate the price and the terms of a sale and provide advice on confidential matters. Under THE REFORM ACT OF 1997, a Real Estate Firm that has written agency agreements with both parties MAY represent both clients, if informed consent to a change of agency status is given in writing PRIOR to signing a purchase agreement. In house transactions can create another situation that involves a type of dual agency. This is called split agency. A Washington licensee MAY perform real estate services as a non-agent facilitator in a transaction. This means that the agent does NOT represent either party and no agency is created with either party. Under THE REFORM ACT OF 1997, the agent is required to disclose to all parties any material facts" known by the agent that are NOT apparent or readily ascertainable. Antitrust laws affecting the real estate industry prohibit conspiracy to fix prices, such as commissions, commission splits, or fees. The laws also prohibit group boycotts that are intended to harm or destroy a competitor and certain "tying" agreements. A tying arrangement is an agreement to sell a product only on the condition that the buyer is tied in to buying another product. It is illegal, if two or more separate products or services are "tied together" a by contract or course of business causing substantial restriction of competition. Introduction 51

52 The Civil Rights Act of 1866, the Federal Fair Housing Act, and the Americans with Disabilities Act (A.D.A.) are federal and state laws that prohibit discrimination in real estate transactions. The law applies to real estate professionals as well as property owners. Real estate agents must be knowledgeable and observant in ALL areas of The Fair Housing Act. Penalties for discriminatory practices are SEVERE, whether OR NOT the action was intentional. Over many years civil rights laws were enacted to give ALL Americans the freedom of choice. The historical evolution of the Federal Fair Housing Act brought to ALL financially qualified citizens the right to equal access to housing. Anyone who is qualified based on income, net worth, and credit has the right to buy OR rent an apartment OR home in any area, REGARDLESS of national origin, race, sex, OR other characteristics of protected classes. The 1866 Civil Rights Act Early settlers of the thirteen original colonies did NOT consider slavery as evil OR immoral and bought BOTH black slaves and white slaves. The black slaves were treated with EVEN MORE cruelty and hatred than white slaves, and as the population grew and the need for labor increased the cruel practice of selling of black slaves from Africa become commonplace. The Declaration of Independence did NOT give rights to black Americans whether they were FREE OR NOT. The historical documents show that slaves and their descendants were NOT considered to be included as the people. As unbelievable as it seems, Article 1 of the United States Constitution counted a slave as three fifths of a person. The government did NOT prohibit discrimination and African descendants were considered to be inferior even in the states that had abolished slavery. Over the years prior to the Civil War, the abolitionist movement became stronger and Abraham Lincoln made worldwide history by ending slavery in the United States with The Emancipation Proclamation. The Thirteenth Amendment prohibited slavery, BUT it did NOT give any rights to fair housing OR civil rights. In 1866, the Reconstruction Congress passed the Civil Rights Act of 1866 that gave the right to equal housing to ALL citizens regardless of race. 52

53 The Civil Rights Act of 1866 prohibited ALL discrimination based on race OR ancestry and gave ALL citizens of the U.S. the right to inherit, purchase, lease, sell, hold, and transfer real and personal property including residential property, commercial property, OR business property. The Fourteenth Amendment enacted in 1868 and the Fifth Amendment s due process clause gives protection from discrimination by the government. The Supreme Court ruled that any restrictive covenant OR condition that was based on race, color OR religion, and made any discriminatory restrictions, is unenforceable and void. Unfortunately, this act was NOT enforced for nearly a century. The Courts limited enforcement to governmental discrimination as in racial zoning OR enforcement of racially restrictive covenants of real property. As an example, the appraisers and the staff of FHA, established in 1934, were allowed and expected to consider the racial diversity of the neighborhood when evaluating property. During the civil rights movement in the 1960s, the act was challenged as an unconstitutional interference with private property rights. BUT, the U.S. Supreme Court upheld the Act in the 1968 landmark case of Jones v. Mayer. The court ruled that the 1866 Act prohibits ALL racial discrimination, private OR public, in the sale and rental of property, and that it is constitutional based on the 13th Amendment to the U.S. Constitution, which prohibits slavery. Violators of the Civil Rights Act of 1866 can be sued for injunctive relief OR damages in federal court. Penalties can include: 1. Injunctions ordering the defendant to cease discriminating 2. Payment to the plaintiff of compensatory damages for losses and suffering caused by the act of discrimination 3. Punitive damages as punishment for inflicting the discrimination Executive Order In November of 1962, President John F. Kennedy signed EXECUTIVE ORDER OR The Equal Opportunity in Housing Order, which ordered federal agencies to take any action to prevent racial discrimination in housing and prohibited discrimination in any federally owned, operated OR assisted housing program. The act was one of the first attempts made by the federal government to implement fair housing ideals by prohibiting racial discrimination, BUT had little impact on the housing market. Civil Rights Act of 1964 In 1964, Congress enacted Title VI that prohibited discrimination based on race, color, religion, OR national origin in many programs and activities receiving federal financial assistance. The effect of the act was extremely limited because it did NOT cover most FHA and VA loans OR the private housing market. 53

54 The Purpose of Title VIII of the Civil Rights Act of 1968, known as the Fair Housing Act The Fair Housing Act of 1968 made it illegal to refuse to rent OR sell based on race. It also outlawed discriminatory advertising and real estate brokerage services, and prohibited blockbusting. The Fair Housing Act of 1968 made it illegal to refuse to rent OR sell based on race. It also outlawed discriminatory advertising and real estate brokerage services, and prohibited blockbusting. The Civil Rights Act of 1968 This law goes further than the 1866 Act OR the 1964 Act, and bans discrimination on the basis of race, color, religion, and national origin in the sale OR lease of most residential transactions. The law also includes remedies and prohibits discrimination in advertising, lending, real estate brokerage, and other services in connection with residential real estate transactions. In 1974, the Act was expanded to included gender discrimination and Title 8 Programs were developed. The same year Congress passed the Equal Credit Opportunity Act which banned discrimination in credit based on race, color, religion, national origin, gender, OR martial status OR age. In 1982, a court decision based on an action entitled Havens Realty Corp. v. Coleman enabled public and private organizations to investigate fair housing violations, using testers to sue for civil penalties, and damages. The Purpose of the Fair Housing Act Amendment of 1988 The Federal Fair Housing Act originally did NOT allow any protection for persons based on handicap OR familial status. The Amendments Act of 1988 added these classifications. The Amendment of 1988 was signed by President Ronald Reagan, and made major changes adding protection for two more classes. These two classes included families with children, and handicapped persons in the sale OR rental of housing OR residential lots. It also extends to advertising and financing of real estate, and the real estate brokerage and appraisal services. The Amendment also gave HUD more authority to enforce the housing act by removing the limit on punitive damages and increased civil penalties. The Fair Housing Law makes it illegal to discriminate on the basis of race, color, religion, sex, national origin, and handicap by: Refusing a bona fide offer to rent OR sell Refusing to make real property available, when it is for sale OR rent Altering terms OR price for different potential buyers OR renters Advertising a preference OR intention to illegally discriminate Altering requirements for a housing loan for different potential borrowers Engaging in blockbusting Refusing OR limiting participation in a MLS OR broker s services 54

55 Discriminating by NOT making properties available by terms/conditions Coercing, intimidating, threatening, OR interfering with Fair Housing Act rights Blockbusting Blockbusting, OR panic selling occurs when homeowners are influenced to list OR sell their properties by a panic created by predictions that property values are about to decline, due to the entry of people of a certain race or color. Example An agent at XYZ Realty discovers that a minority family has just moved into a white neighborhood. The agent immediately begins contacting the owners in the same neighborhood warning that more minority families are planning to buy homes in the neighborhood The agent implies that drug use, theft and violence will spread and property values will drop as a result. These illegally fabricated stories cause owners to suddenly list their homes with XYZ Realty. XYZ Realty has created panic selling, and is guilty of blockbusting. Steering Steering is the illegal practice of directing persons to certain neighborhoods according to their race OR other characteristic of a protected class, and the attempt to influence, maintain OR alter the characteristics of neighborhoods. An agent is prohibited to lead, channel, negotiate, OR direct individuals to specific neighborhoods in an attempt to segregate. Steering can be telling prospective purchasers OR renters that they would NOT be comfortable in a certain neighborhood, development OR floor of a building. Example ABC Realty has fourteen agents. The only agent who is of Asian descent always is directed to handle Asian buyers. The agent is encouraged to make these particular buyers more comfortable by showing homes in predominately Asian neighborhoods. This practice would make ABC Realty guilty of steering. Redlining The term redlining comes from the past practice by lenders who would outline certain areas on a map in red. These areas were based on the racial composition of the neighborhoods, and lenders refused to make loans in the redlined areas. Redlining is discrimination in residential loans involving the racial composition of the area in which the property is located. It is illegal for a lender to refuse to give loan information, OR apply different terms, interest rates, fees, OR conditions, based on the racial makeup of an area. 55

56 A lender may NOT refuse to purchase a loan OR lower an appraisal based on racial composition of an area. The Home Mortgage Disclosure Act of 1975 prohibits redlining and requires large institutional lenders to file an annual report of their mortgage loans so that they can be categorized by locations, making it easier to determine if redlining is practiced. Example Buyer Amy makes an application for a loan at O Hara s Bank, to purchase a home located in the Newhope Subdivision. Newhope is a predominantly minority neighborhood. O Hara s Bank rejects the loan based on fear that property values will decrease in Newhope because of the racial makeup of the neighborhood. O Hara Bank is guilty of redlining. Americans with Disabilities Act ADA Housing and Real Property Transactions The Fair Housing Act makes it illegal to discriminate against anyone with a physical OR mental disability that substantially limits one OR more major life activities. In January of 1992, the ADA OR Americans with Disabilities Act was enacted to guarantee people with physical OR mental disabilities equal access to employment, government services, telecommunications, transportation and public facilities. A handicap OR disability is the substantial limitation of one OR more of the person s major life activities, OR being regarded as having impairment. Major life activities include the person s ability to work, take care of their self, do manual tasks, see, walk, speak, hear, breathe, and learn. Physical OR mental impairments include: orthopedic, visual, speech, and hearing impairments, epilepsy, cerebral palsy, muscular dystrophy, diabetes, cancer, heart disease, multiple sclerosis, learning disabilities, mental OR emotional illness, mental retardation, tuberculosis, HIV OR AIDS OR AIDS related complex, chronic alcoholism, and drug addiction. The act does NOT protect people who threaten public health OR safety, OR who are using illegal drugs. A residential landlord must allow a handicapped tenant to make reasonable modifications, BUT the landlord has the right to require the work be done at the tenant s expense. The landlord also can require the tenant to restore the premises to their original condition at the end of the lease. Landlords and commercial building owners must allow reasonable exceptions to accommodate handicapped tenants. For example, they cannot refuse to rent to someone with a guide dog, even if no pets are allowed. Special wheelchair accessibility rules apply to new residential construction with four units OR more occupied after March,

57 Hiring / Employment ADA was enacted to guarantee to those disabled persons with physical OR mental disabilities, equal access to employment, local and state government services, telecommunications, transportation, and public facilities. Employers may NOT discriminate against individuals with disabilities in hiring OR promotion, if the individual is otherwise qualified for job. The person is considered to be qualified, if he OR she has legitimate skills other requirements and can perform the duties with OR without reasonable accommodations. This does NOT mean that an employer is required to lower the quality OR quantity standards OR burden the business to make accommodations. Public Accommodations in Commercial Facilities Under the ADA, no one can be discriminated against on the basis of disability in any place of public accommodation. A public accommodation is defined as any private entity that owns, leases, leases to, OR operates a place whose operations affect commerce with facilities open to the public. To ensure accessibility to public accommodations, the ADA requires each of the following to be accomplished, as long as it is readily achievable. The ADA requires any business OR other facility open to the public to be accessible to the disabled. Both architectural and communication barriers must be removed so that goods and services are accessible to the disabled. Owners of public accommodations are prohibited from denying disabled individuals equal access of goods, services, facilities, etc., of any public accommodation. The structure must provide access for disabled persons to participate in services OR goods on an equal basis with non-disabled persons. 57 This can be done by modifying the service, if it doesn t alter nature of the service, and by removing architectural barriers wherever removal is easy and at little expense. The main factors in determining whether these modifications must be made involves safety requirements, the type of changes, and the ability of the business to bear the cost. In most cases, the easiest and most affordable changes would include: the addition of ramps, moving vending machines, furniture, using raised markings on signs and elevator buttons, widening doors, modifying restroom and toilet stalls, lowering fountains and phones, and changing the carpet. If the physical barriers cannot be easily OR inexpensively removed, the services should be made easily accessible such as drive up services to a window OR door.

58 ALL new construction of commercial facilities OR public accommodation must comply with Architectural and Transportation Barriers Removal Compliance Board s Accessibility Guidelines, as well as ALL guidelines in Washington State Barrier Free Facilities Regulations. Services must be provided so that no disabled person is excluded, denied, segregated, OR treated differently than other people. Any changes to a commercial building, including remodeling, restoration, OR rearrangements of walls and partitions that could affect the usability of any part of the structure must be accessible to disabled people. Alterations that are made to areas such as lobbies, reception areas and cafeterias must always provide accessibility to restroom, telephones and drinking fountains. Additional alterations are only required, if the accessibility costs DO NOT exceed 20% of original changes. ADA does NOT replace existing state OR local building codes, BUT it does allow the US Attorney General to certify that state law, local building code, OR similar ordinances meet OR exceed minimum accessibility requirements after a prior notice and public hearing. ALL structures must be designed to be readily, easily and conveniently accessible by individuals with disabilities, UNLESS it is structurally impracticable. HOWEVER, elevators are NOT required in buildings under 3,000 square feet and less than 3 stories EXCEPT shopping centers OR health care providers. Private individuals who file complaints with the Attorney General, OR who take legal action to obtain cease and desist orders to stop alleged practices of discrimination, may enforce public accommodation provisions. The Attorney General may seek punitive damages plus civil penalties up to $50,000 for a first violation, and up to $100,000 for each additional violation. Exemptions to the Fair Housing Laws EXEMPTIONS TO THE FAIR HOUSING LAWS WILL ONLY APPLY, IF THE SERVICES OF A REAL ESTATE LICENSEE IS NOT USED, AND NO DISCRIMINATORY ADVERTISING IS USED. Exceptions include the rental OR sale of SINGLE FAMILY HOMES by the owner, IF: The owner owns three or less single-family homes at one time The house is sold OR rented without a real estate licensee Non- owner occupied and owner was NOT the last occupant prior to sale. This is allowed only once in a 24-month period. 58 The EXEMPTION DOES apply to the private owner in the sale OR rental of a dwelling with UP TO FOUR UNITS, IF OWNER LIVES IN and

59 maintains one of living units as their residence. The EXEMPTION DOES NOT apply to any multifamily dwelling of 5 OR more units, OR to units that have up to four units, if owner DOES NOT LIVE IN one of units. The Law DOES NOT prohibit non-commercial religious organizations from limiting sales OR rentals of rooms that it owns to its members OR giving preference to their members, UNLESS membership is restricted on the basis of race, color OR national origin. The Law allows private clubs that provide accommodations OR lodging for a non-commercial purpose, to limit sales OR to give preference to its members, UNLESS membership is restricted on the basis of race, color OR national origin. HUD has determined that housing for elderly is exempt from familial status discrimination, IF it was specifically designed with significant services and facilities for older persons, UNLESS NOT practicable. It MUST be occupied solely by persons 62 OR older, OR at least one person 55 OR older in at least 80% of occupied units under a federal, state OR local government program. Washington Law Against Discrimination Local, State and Federal Agencies The Washington State Human Rights Commission was created to eliminate and prevent discrimination in this state. Washington State Law RCW prohibits discrimination in housing, employment, insurance, and credit transactions, public accommodations, amusement, public resorts, and ALL types of real estate transactions. Washington law goes much further than federal law and there are very few exemptions. The Washington Law prohibits discrimination based on a race, color, creed, sex, national origin, marital status, familial status, physical, mental, OR sensory disability, using a trained guide dog by blind, deaf person OR physically disabled person, and protects people infected OR perceived to be infected with HIV. Unlawful Discriminatory Practices It is illegal to: Refuse to enter into a real estate transaction Refuse to negotiate Alter terms OR conditions Refuse services OR facilities Refuse to receive, submit OR fail to submit a bona fide offer Represent that a property is NOT available with knowledge that it is available Fail to give information on a listing OR refuse to allow access to the property Advertise with intent to discriminate 59

60 Use application forms OR records that indicate directly OR indirectly, the intent to discriminate Offer, solicit, accept, OR retain a listing knowing that a person may be discriminated against Expel a person from occupancy Discriminate in negotiating, executing, OR financing a real estate transaction Discriminate in any service OR item connected with a real estate transaction Use (OR attempted use) of materials that could cause panic selling OR blockbusting Attempt to enforce illegal restrictions/provisions of a real estate instrument Discriminate in financing (denying credit, change down payment, increase fees, OR change any condition) Discriminate against any person based on having AIDS, OR HIV, OR the perception of having AIDS, OR HIV, OR related conditions State and federal laws ban any questions OR inquiries OR speculation about AIDS, and related conditions, from prospective OR former landlords, tenants, buyers, sellers, OR agents. This means that a landlord, tenant, buyer, seller, OR real estate agent MAY NOT ask if ANYONE has OR had AIDS OR related conditions, NOR can they answer this type of question. Violations Violations may result in an award for damages of up to $1,000 for humiliation and mental suffering plus an additional award of $1,000 for loss of the right to be free from discrimination. The injured party may choose to have the Attorney General bring a civil action instead of an administrative hearing against the alleged discriminator. The $2,000 damage limitation applies only to administrative hearings. In a civil lawsuit, judgments may be far in excess of $2,000. The hearing may be appealed to the superior court by filing an appeal within 30 days after being served with the final order. Washington Fairness in Lending Act The Washington Fairness in Lending Act allows a lender to evaluate the borrower s credit and the market value of the property, BUT prohibits the use of any process OR standards that have no financial basis. The act prohibits redlining by banning the denial of residential home loans based on a particular location OR area. It is illegal to alter OR vary the terms of the loan by requiring a higher down payment, higher interest rate, OR shorter amortization term, OR by deliberately lowering the appraisal of the property based on a particular location. Washington License Laws 60

61 In addition to complying with the federal and state laws already discussed, real estate licensees must also know and obey licensing laws and regulations. Avoid words such as: Private Restricted Exclusive 61 According to the licensing law, violating any fair housing OR civil rights laws OR regulations is grounds for disciplinary action. Real estate firms are required to display the Equal Housing Opportunity Poster in any business where housing is offered for sale OR lease. Licensees cannot refuse to accept listings from owners that intend to buy OR sell on a discriminatory basis. If an owner shows any intention to discriminate, the licensee must explain that the action is violation of law. If the owner still shows intent to discriminate, the licensee must immediately terminate the listing and notify the commission. It is illegal to give anyone information OR opinions about the racial composition of a neighborhood, OR shown certain homes OR areas based on racial composition. Licensees must NEVER answer questions, offer opinions, OR make estimations to anyone (buyers, sellers, landlords, and renters) about the racial, ethnic OR religious make up of schools, neighborhood, families, areas etc. Families with children must be treated the same as persons without children. They cannot be required to pay higher security deposits OR be restricted to sized homes, to certain parts of a complex, OR in a way that tenants without children are NOT restricted. Violations of the Fair Housing Act also can include using human models that give a certain message to a specific group, to discourage families with children, minorities, disabled, such as using only adults, OR only one sex. Advertising must NOT indicate preferences by using terms that exclude protected groups, such as saying no children OR for physically fit only. Fair housing advertising rules also makes decisions whether to accept and publish the ad. Sometimes, to remedy prior discrimination, affirmative marketing is used to attract persons who would NOT otherwise apply. Advertisements that mention race, color, religion, sex, handicap, familial status, OR national origin, such as white community, Asian area, black neighborhood, Latin residence, Christian, men only OR adult complex, are prohibited. The law allows the availability of information on accessible housing, dormitory facilities by educational institutions, and housing for older persons.

62 Integrated Traditional OR Association approval Advertising must NOT contain property locations using terms of racial OR ethnic landmarks, such as established white neighborhood OR references to churches, synagogue, country club, private schools, OR sex discrimination, such as men s gun club. Sometimes the selective content of advertising, referring to various housing developments OR areas, OR the use of only English language can be unlawful. All advertising of residential real estate for sale, rent OR financing should contain Equal Housing Opportunity Logo. A designated broker s OR managing broker's OR broker s license could be suspended OR revoked for discrimination in sales OR hiring practices on the basis of discrimination against a protected class. In addition, the licensee could be fined up to $1,000 for each offense and/or be required to complete an approved course in civil rights laws and nondiscriminatory real estate practices. Violations of the license law also are punishable as gross misdemeanors. Washington Law / Equal Access to Facilities The Washington Law Against Discrimination, the Fair Lending Act, and the Washington Real Estate License Law ALL include provisions designed to promote fair housing within the state. Agents, sellers and landlords MUST COMPLY with these laws. Real estate brokerages are considered public accommodations and are subject to laws requiring accessibility. Real estate firms should be sure that their own office is accessible and in full compliance. It is very important for licensees to advise clients of new OR existing businesses OR commercial buildings to obtain building inspections and architectural recommendations to assure their full compliance. Real estate licensees that represent the purchase OR lease of commercial properties OR management of commercial property are responsible that the owner is in compliance with the law. Licensees and clients MUST comply with the law and document ALL inspections, building modifications, equipment purchases, cost of alterations, and estimated costs of work that will NOT be performed because it is too expensive. The agent has a fiduciary obligation to the client to review the lease to determine who has the legal responsibility for compliance, and to disclose any known violations of law. A person may NOT refuse to accept a bona fide offer to rent OR sell to parents with children under 18 years of age. It is also illegal to discriminate against pregnant women, legal guardians of children, OR anyone seeking custody of a child based on familial status. 62

63 It is illegal to refuse to consider offers, use different standards OR charges OR use a different application form, OR evict tenants based on the familial status. Adults only apartments OR condominium complexes are prohibited, as are family OR adult areas. Washington Law Exceptions Washington law (unlike federal law) has NO EXEMPTIONS FOR INDIVIDUAL OWNERS. An owner of only one home is still prohibited from discriminating in selling OR renting the home OR when renting rooms in their own home. HOWEVER, the Human Rights Commission will NOT hear cases involving discrimination based on sex in the rental of rooms where the parties are to share living space. The Mrs. Murphy Exemption, was the result of case where a woman wanted to rent a room in her home, only if she could have the choice to rent to another woman. It is legal to reasonably limit number of occupants when it is based on the number and size of the bedrooms and square footage, BUT this limit cannot be used to limit OR exclude children. The law includes an exemption for properties that qualify as housing for older persons. Children can be excluded from properties to assist the elderly under a government program OR Intended for and occupied by persons 62 years OR more of age OR Designed for older persons with 80%+ units occupied by a person 55+ Religious organizations OR societies OR private clubs with accommodations that aren t public and are NOT used for a commercial purpose MAY LIMIT OCCUPANCY OR give preference to their own members. Educational institutions may discriminate in student housing based on sex OR marital status, as long as membership isn t restricted on the basis of race, color OR national origin. There are NO EXEMPTIONS under Washington State Law for any transaction involving a real estate licensee. Penalties for Violations of the Fair Housing Laws Juries and judges view FAIR HOUSING cases that concern discrimination against families with children so seriously, that real estate licensees absolutely cannot assume the risk of severe penalties of potential violations. Errors and Omission insurance does NOT cover cases that involve fair housing. Designated Brokers, and every agent licensed under the designated broker, must know these laws and practice these laws to the letter every single day and with every single contact, with ABSOLUTELY NO EXCEPTIONS. The Department of Housing and Urban Development, HUD, through its Office of Fair Housing and Equal Opportunity enforce the Fair Housing Law. A person who believes they have been injured by discrimination may file a complaint with the Human Rights Commission within six months of the alleged act. Once the complaint is filed with HUD, the agency will investigate, to determine if there is a reasonable basis for the complaint. 63

64 An attempt will be made to reconcile differences and persuade the offending party to abide by the law. If this does NOT result in a resolution, the Commission may schedule a hearing before an administrative law judge (ALJ) UNLESS either party chooses to have the case decided in federal court. In an administrative hearing, HUD attorneys defend the complainant. If the case goes from HUD to federal court, the U.S. Attorney General s office defends the complainant. If the judge finds unlawful discrimination, a cease and desist order will be issued. The violator also may be ordered to pay compensatory damages and attorneys fees to the complainant. A judge could require affirmative relief, such as requiring the landlord to rent the next available apartment to minority tenants. A Federal court can order the violator to pay punitive damages to the complainant. An administrative law judge does NOT award punitive damages, BUT can impose civil penalties ranging from a first offense maximum of $10,000, to $50,000 for a third offense within seven years. The federal laws and regulations designed to eliminate discrimination in lending and real estate transactions include: The Federal Fair Housing Act The Equal Credit Opportunity Act The Home Mortgage Disclosure Act Consumer complaints OR enforcement issues should be addressed to: U.S. Dept. of Housing and Urban Development Assistant Secretary Fair Housing & Equal Opportunity Washington, DC Example In 1990, a Washington DC woman who had children attempted to rent an apartment BUT was denied. She claims she was told that it was an ALL adult building. A second apartment in the same building, came up for rent. She again tried to rent the apartment, and again was told that it was an ALL-adult building. She sued and in 1992, the judge ordered the Property Management Company to pay her $2,410, in damages. In Washington State, the fair housing laws are similar to the federal laws, so HUD often refers complaints to the Washington Human Rights Commission. The Equal Credit Opportunity Act ECOA The Fair Housing Act prohibits discrimination in residential loans and financing but does not apply to other credit transactions. ECOA, Equal Credit Opportunity Act applies to ALL consumer credit, including residential real estate loans. Consumer credit is extended to an individual for personal use. The act prohibits lenders from discrimination based on race, color, national origin, religion, sex, marital status, age OR because the applicant s income is derived in any portion from public assistance. They can HOWEVER, require the person to be of legal age. 64

65 The Home Mortgage Disclosure Act The Home Mortgage Disclosure Act is a way of tracking lenders to make it easier to detect and enforce federal laws against redlining. The Act requires institutional lenders with assets of over $10 million to make annual reports on residential loans throughout the fiscal year. The reports assign account numbers and show the dollar amount, loan type (FHA, VA, FMHA, etc) according to their geographic location. These reports can alert investigators by identifying areas where home loans have OR have NOT been approved. Review Discrimination in real estate transactions is prohibited by the Civil Rights Act of 1866, the Federal Fair Housing Act, and Washington anti-discrimination statutes. The Civil Rights Act of 1866 prohibits ALL discrimination based on race OR ethnic ancestry in the sale and leasing of real property. The Civil Rights Act of 1964 prohibited discrimination in programs and services for which the federal government provided financial assistance. The Federal Fair Housing Act is more inclusive than the Civil Rights Acts of 1866 and 1964, by prohibiting discrimination based on race, color, religion, sex, national origin, handicap, OR familial status, and applies only to transactions involving residential property. Blockbusting, steering and redlining are the three specifically prohibited acts under the Federal Fair Housing Act. Blockbusting is attempting to take listings OR buy property by implying the entry of minorities into the neighborhood and creating fear that this will cause a decline of property values. Steering is the directing of buyers OR renters to certain neighborhoods based on race OR other protected characteristics. Redlining is the refusal to make loans on properties located in particular areas for discriminatory reasons. Several federal laws and regulations prohibit discrimination in credit transactions: Federal Fair Housing Act Equal Credit Opportunity Act and Home Mortgage Disclosure Act The Americans with Disabilities Act guarantees equal access to facilities regardless of physical OR mental disability. Real estate licensees must make absolutely sure that ALL persons are treated in the same manner. This is important and should be reflected in your manner of greeting, offering of refreshments, explanations of services, and obtaining information such as name, address and phone number. Ask ALL prospects if they have been pre-qualified and the results of the pre-qualification. It is illegal to ask some, and NOT others. Offer ALL the choices that are available to ALL prospects. 65

66 Keep good records of ALL of your contacts and the questions asked, requests, any possible discriminatory behavior, and services provided. Make sure that your company has an established and solid method of monitoring and evaluating its agent s practices. Ask ONLY objective information regarding your clients needs and wants. This includes identifying preferred priced range, size, features, and locations. If you hear questions OR comments about a person s color, OR any type of illegal discrimination you MUST NOT FAIL to communicate that access to housing cannot be based on race OR any characteristic of a protected class. You MUST ALSO COMMUNICATE to the owner that the owner may NOT refuse to accept the consequences of illegal discrimination under the Fair Housing Act. ANY such questions OR comments should alert you to serious potential problems. Immediately explain your office s policy and responsibilities to comply with Fair Housing Laws. Licensees should NEVER react with humor OR even feigned humor to any type of discrimination. A real estate licensee would be wise to withdraw from ANY representation of such a person OR inform the person that discrimination OR ANY deviation from the Fair Housing Laws will NOT be tolerated. Introduction License law requires firms/designated brokers to set up a system of records to establish an audit trail of funds received and disbursed to and from each client. This system can be manual OR computerized. Firms/Designated Brokers may use the Director's procedure, OR may submit their own for approval. Real estate firms that handle funds for third parties are required to open trust account s in the name of the firm as licensed. The firm may need one OR more accounts. The account(s) MUST be in a recognized Washington financial institution. This account MUST be kept separate from the firm's/designated broker's business and personal funds to prohibit commingling of these funds with ANY other funds. None of the firm s own funds may be in the account WITH THE EXCEPTION that a real estate firm MUST maintain an adequate amount of funds in the trust fund accounts to facilitate the opening of the trust fund accounts or to prevent the closing of the trust fund accounts. The purpose of the trust account is to hold the funds of clients pending the closing of a real estate sale OR transaction OR to hold funds collected for disbursement on the client s behalf. All funds, such as earnest money OR collected rents, MUST be deposited NOT later than the first banking day after receiving the funds unless the purchase and sale agreement provides for deferred 66

67 deposit or delivery. In that event, the designated broker must promptly deposit or deliver funds in accordance with the terms of the purchase and sale agreement. Trust accounts are required to be interest bearing accounts that allow the firm to make withdrawals without delay. The ONLY EXCEPTION is property management trust accounts which are NOT required to be interest-bearing accounts. The interest, minus reasonable bank charges, MUST be paid to the State Treasurer. The Washington Housing Trust Fund receives 75% of this interest and the Real Estate Commission Account receives 25%. Brokers MUST place ALL deposits of $10,000 OR LESS into a pooled account. Deposits of $10,000 OR less are legally considered to be nominal deposits. When the deposit is for an amount OVER $10,000, the broker MUST give written notification to the person depositing the funds that they have a choice. They may have the funds deposited into the pooled account with interest paid to the State, OR with written consent the broker can establish a separate trust account with the interest to be paid to the individual. They may have the funds deposited into the pooled account with interest paid to the State, OR with written consent the broker can establish a separate trust account with the interest to be paid to the individual. Trust Account Disbursement Typically, the buyer writes a check as earnest money when making an offer to purchase real property. The check is made payable to the real estate firm s trust account, and the designated broker deposits it in the firm's trust account. The designated broker is usually required to deposit the check no later than the first banking day after receipt BUT there are exceptions. This can occur when the purchase agreement directs the broker to hold the earnest money check without depositing it until a particular date OR upon the happening of an event. Example The Randolph s make an offer to purchase a house. They make out a check to Century Realty trust account for $2,000. The purchase offer states that this $2,000 will NOT be deposited into the trust account until the seller accepts the offer. It is LEGAL for the designated broker to hold the check until the seller accepts the offer. When both a selling firm and a listing firm are involved in a transaction, the firm who first receives the earnest money is responsible for handling the funds. 67

68 The selling firm most often takes the earnest money check when the buyer makes an offer. The purchase offer also can direct that the earnest money be deposited in another trust account, such as the: Closing attorney Escrow agent Cooperating broker Or even the Seller When the earnest money is to be deposited with someone other than the broker, the broker should obtain a dated receipt to include in the transaction file. Disbursement from a trust account cannot be made before closing, OR before a condition in the contract is met UNLESS: There is written consent of ALL parties The transaction fails to close and the agreement provides disbursement It is to the closing agent OR attorney A broker may NOT pay business expenses from a trust account. If the client owes the firm part of the money held in trust, the funds MUST transfer from the trust account to the broker's general business account before the broker can use them. Commissions Paid from Trust Accounts Commissions A real estate commission OR other compensation for real estate brokerage services CANNOT be paid to anyone without a valid real estate license. A licensee cannot sue for a commission unless there is proof that the person held a valid license prior to: Offering to perform real estate services OR Procuring a contract OR a Promise to be paid for real estate services The law also applies to licensees who want to sue another licensee. It is ILLEGAL for a firm to pay a real estate licensee who is NOT affiliated with the firm, OR for ANY licensee to pay ANY part of a commission OR compensation to ANY person, whether licensed OR NOT, except through the designated broker. A licensed designated broker legally may pay a commission OR compensation to licensed real estate brokers in the United States, its possessions, OR Canada, OR to the designated broker s own affiliated licensees. When two OR more licensees are sharing a commission, their own designated broker MUST handle the split. A designated broker may NOT directly pay another designated broker s affiliated licensee. After closing, the designated broker s commission (and commissions paid to cooperating brokers) MAY be paid directly from the trust account by the broker writing a separate check for each commission. 68

69 The designated broker may NOT pay commissions to his/her affiliated licensees directly from the trust account. These payments are the same as ALL other broker business expenses. The funds MUST first be transferred from the trust account to the firm's/designated broker's general business account. The designated broker then writes a commission check to the affiliated licensees from the general account. Trust Account Records The real estate firm/designated broker is required to keep: Duplicate receipt books OR cash receipts journals showing ALL receipts Pre-numbered checks with check register, cash disbursements journal, OR check stubs Validated duplicate deposit slips... AND Client ledger summarizing receipts and disbursements for each transaction, property management account, OR contract OR mortgage collection account AND Separate ledger sheets for each tenant, lessee, vendee, OR mortgagor Ledger for the interest on the firm's/designated broker's pooled Housing Trust Fund account AND Reconciled bank statements and canceled checks, including voided checks Trust account checks MUST be pre-numbered to account for voided checks Real estate firm's/designated Broker's bank accounts holding client funds must be in the firm name of the designated broker as licensed and designated as "trust" accounts. All trust funds connected with a sale, lease, option, or business opportunity, must be deposited into the designated broker's trust account NOT LATER THAN THE FIRST BANKING DAY FOLLOWING RECEIPT, unless specifically stated and agreed to in the earnest money agreement. Duplicate deposit slips, validated by bank imprint or electronic transfer memo identifying the source of funds and the transaction to which it applies, must document all deposits. Credit entries made to a client's ledger sheet must show: Date of deposit Amount, and Item covered Rent, down payment, etc. If the item is covered in the cash receipts journal or duplicate receipt book, it may be omitted from the ledger sheet. Debit entries to a client's sheet must show: Date of check Check number, Amount of check 69

70 Payee, and Item covered What check is in payment of If shown in the check register, check stubs, or disbursement journal, it may be omitted from ledger sheet. The number of each check, amount, date, item covered must be shown on all check stubs or in the check register or cash disbursements journal. The designated broker's trust bank account must be in agreement at all times with the outstanding balance equaling the outstanding liability shown in the client's ledger. It is very important that the designated broker prepare a TRIAL monthly trust account reconciliation of the client's ledger book and the bank statements. Preparing a trial balance includes checking the trust account balance for each client, and comparing the total of his or her individual client ledgers with the current balance in the trust account. Compare each client ledger with the corresponding transaction folder to make sure: 1. All deposits shown have been recorded 2. All checks have been recorded 3. Any voided checks have been marked "void" and retained 4. All math has been calculated correctly 5. All balances are totaled To perform the bank reconciliation, compare the check register, and duplicate deposit book with the most recent bank statement for deposits and checks that have been canceled. After subtracting the checks that you have written in your register that have not been canceled (paid by the bank), your "reconciled" check register and your "reconciled" bank statement should be equal. If these amounts are not equal, balance the checkbook or check register again, and perform another trial balance. Check your bank reconciliation for problems such as outstanding checks (not yet canceled), missing checks, voided checks, deposits not posted, cash deposits, receipts, deposit receipts not matching, deposits not yet, or mathematical errors. Check each individual ledger and all register entries for accuracy by matching deposit receipts and checks with the statements. All disbursements of trust funds shall be made by check or electronic transfer and identified to a specific real estate transaction. ELECTRONIC TRANSFER is the pre-authorization of disbursements or deduction by the financial institution for recurring expenses such as mortgage payments. Mortgage payments on behalf of the owner is NOT permitted, if the account contains tenant security deposits or funds belonging to more than one client. 70

71 Receipt of funds by wire transfer are to be posted in the same manner as other receipts provided there is a traceable identifying number from the financial institution or transferring entity. No disbursement from the trust account can be made based upon wire transfer receipts until the deposit has been verified. The designated broker must make arrangements with the financial institution to provide a follow-up "hard-copy" debit memo when funds are disbursed via wire transfer. The designated broker must retain instructions signed by the owner of funds to be wire transferred which identifies the receiving entity and account number. All voided checks must be permanently defaced and retained. The designated broker is accountable for the proper handling of trust funds. It is a serious breach of the designated broker's responsibility, if trial balances and reconciliations do not balance or are not properly done. To avoid serious penalties and liability, it is extremely important that the designated broker make sure disbursement journal ledgers are posted and up-to-date and monthly reconciliations of each trust account are performed. Tasks Performed by Department of Licensing Auditors During a Routine Audit During a routine audit, Department of Licensing Auditors will: Contact the brokerage to set an appointment for the audit and to describe the records that will be reviewed during the course of this audit. Visit the brokerage office and examine the records onsite. After reviewing brokerage accounting records the auditors may provide the designated broker with information and instructions for future use. Notify the designated broker of the audit findings and explain any necessary adjustments. Establish payment procedures (or refund procedure in the event of an overpayment) for any assessed taxes, penalties, etc. if the audit findings are agreed to. Allow the designated broker to request a conference with the auditor's manager in the event of a disagreement. Finalize and process the audit and mail out an assessment package. (This should take from four to six weeks). Trust Account Records 71

72 The real estate firm/designated broker is required to keep: Duplicate receipt books OR cash receipts journals showing ALL receipts Pre-numbered checks with check register, cash disbursements journal, OR check stubs Validated duplicate deposit slips... AND Client ledger summarizing receipts and disbursements for each transaction, property management account, OR contract OR mortgage collection account AND Separate ledger sheets for each tenant, lessee, vendee, OR mortgagor Ledger for the interest on the firm's/designated broker's pooled Housing Trust Fund account AND Reconciled bank statements and canceled checks, including voided checks Trust account checks MUST be pre-numbered to account for voided checks Real estate firm's/designated Broker's bank accounts holding client funds must be in the firm name of the designated broker as licensed and designated as "trust" accounts. All trust funds connected with a sale, lease, option, or business opportunity, must be deposited into the designated broker's trust account NOT LATER THAN THE FIRST BANKING DAY FOLLOWING RECEIPT, unless specifically stated and agreed to in the earnest money agreement. Duplicate deposit slips, validated by bank imprint or electronic transfer memo identifying the source of funds and the transaction to which it applies, must document all deposits. Credit entries made to a client's ledger sheet must show: Date of deposit Amount, and Item covered Rent, down payment, etc. If the item is covered in the cash receipts journal or duplicate receipt book, it may be omitted from the ledger sheet. Debit entries to a client's sheet must show: Date of check Check number, Amount of check Payee, and Item covered What check is in payment of If shown in the check register, check stubs, or disbursement journal, it may be omitted from ledger sheet. The number of each check, amount, date, item covered must be shown on all check stubs or in the check register or cash disbursements journal. The designated broker's trust bank account must be in agreement at all times with the outstanding balance equaling the outstanding liability shown in the client's ledger. It is very important that the designated broker prepare a TRIAL monthly trust account reconciliation of the client's ledger book and the bank statements. 72

73 Preparing a trial balance includes checking the trust account balance for each client, and comparing the total of his or her individual client ledgers with the current balance in the trust account. Compare each client ledger with the corresponding transaction folder to make sure: 1. All deposits shown have been recorded 2. All checks have been recorded 3. Any voided checks have been marked "void" and retained 4. All math has been calculated correctly 5. All balances are totaled To perform the bank reconciliation, compare the check register, and duplicate deposit book with the most recent bank statement for deposits and checks that have been canceled. After subtracting the checks that you have written in your register that have not been canceled (paid by the bank), your "reconciled" check register and your "reconciled" bank statement should be equal. If these amounts are not equal, balance the checkbook or check register again, and perform another trial balance. Check your bank reconciliation for problems such as outstanding checks (not yet canceled), missing checks, voided checks, deposits not posted, cash deposits, receipts, deposit receipts not matching, deposits not yet, or mathematical errors. Check each individual ledger and all register entries for accuracy by matching deposit receipts and checks with the statements. All disbursements of trust funds shall be made by check or electronic transfer and identified to a specific real estate transaction. ELECTRONIC TRANSFER is the pre-authorization of disbursements or deduction by the financial institution for recurring expenses such as mortgage payments. Mortgage payments on behalf of the owner is NOT permitted, if the account contains tenant security deposits or funds belonging to more than one client. Receipt of funds by wire transfer are to be posted in the same manner as other receipts provided there is a traceable identifying number from the financial institution or transferring entity. No disbursement from the trust account can be made based upon wire transfer receipts until the deposit has been verified. The designated broker must make arrangements with the financial institution to provide a follow-up "hard-copy" debit memo when funds are disbursed via wire transfer. The designated broker must retain instructions signed by the owner of funds to be wire transferred which identifies the receiving entity and account number. All voided checks must be permanently defaced and retained. The designated broker is accountable for the proper handling of trust funds. It is a serious breach of the designated broker's responsibility, if trial balances and reconciliations do not balance or are not properly done. To avoid serious penalties and liability, it is extremely important that the designated broker make sure disbursement journal ledgers are posted and up-to-date and monthly reconciliations of each trust 73

74 account are performed. Broker s Records Every licensed real estate designated broker is required to keep adequate records of ALL real estate transactions handled by OR through the firm or firms to which the designated broker is registered. The records shall include, but are not limited to, a copy of the purchase and sale agreement, earnest money receipt, and an itemization of the receipts and disbursements with each transaction. 74 These records and all other records specified by the director by rule are open to inspection by the director or the director's authorized representatives. Brokers and managing brokers must submit complete copies of their transactions to their firm. All required real estate records shall be kept at an address where the real estate firm is licensed to maintain a real estate office. Transactions that have been closed for at least one year can be maintained at one central facility located in Washington. Transactions not stored at the firm location must be available upon demand of the department and maintained in a manner to be readily retrievable. A listing of all transactions must be maintained at the firm's licensed office for all the transactions stored at the remote facility. All records shall be retained and available for inspection by the director or the director's authorized representative for a minimum of three years. THE STATUTE OF LIMITATIONS for some claims against a designated broker do NOT run out for several years, so it is advisable to keep records to meet this requirement. The designated broker MUST keep ALL records at the main office OR branch office. The records MUST include a copy of the: Earnest money receipt An itemization of the broker's receipts And disbursement of each transaction These records and ALL other records MUST be available to ALL parties of the transaction. The records MUST be open to inspection by the Director and the designated broker MUST provide copies to the Director upon demand. Property managers may keep original leases OR rental agreements at property sites with a resident manager, if tenant information and terms of leases are kept at the designated broker s office. The designated broker MUST keep a copy of the property management agreement with each owner of property and a copy of each summary showing the property's financial status. At the time of signing, the real estate licensee also is responsible for the delivery to ALL parties, all signed copies of: Earnest money receipts Listing agreements And other related documents, including the closing statement

75 The designated broker MUST keep a transaction folder for each transaction, including: Purchase agreement Listing agreement Rental OR lease agreement Addenda OR modifications Settlement OR closing statement Any other relevant documents Recent Real Estate case involving trust account fraud: In August 2017, a WA Real Estate Escrow Company firm was indicted last month by a federal grand jury on ten counts of bank fraud, and one count each of mail and wire fraud, announced U.S. Attorney Annette L. Hayes, The Washington State Department of Financial Institutions arranged for a receiver to take over the Tukwila, Washington escrow company in 2012 after finding evidence of fraud. The defendant had his/her license to act as an escrow agent suspended in 2013 and his/her license has since been revoked. According to the indictment, beginning in about January 2011, and continuing until July 2012, The defendant used a variety of means to defraud financial institutions and individual home buyers and sellers who were involved in various real estate transactions. The defendant made, or had others make, false settlement statements on the transactions listing false or inflated fees and charges to hide the fact that he/she was embezzling money. The defendant forged signatures on various statements and created false invoices, statements and bills; he/she altered and deposited checks to the defendant s company account that should have gone to others; the defendant took funds from his/her trust account and transferred them to his/ her personal account for his/her own use. The Defendant used the money for casino payments, credit card bills and other personal expenses. The defendant defrauded individual customers as well as Bank of America, Wells Fargo, Citi Bank, Chase and GMAC. In all the indictment alleges the defendant defrauded the financial institutions and other customers of approximately $2 million. The charges contained in the indictment are only allegations. A person is presumed innocent unless and until he or she is proven guilty beyond a reasonable doubt in a court of law. Each count of bank, mail or wire fraud is punishable by up to 30 years in prison and a fine of up to $1 million. The case was investigated by the Washington State Department of Financial Institutions, the FBI, the Postal Inspection Service (USPIS) and the Housing and Urban Development Office of Inspector General (HUD-OIG). The case is being prosecuted by Special Assistant United States Attorney Hugo Torres and Assistant United States Attorney Norman Barbosa. Mr. Torres is a Senior King County Deputy Prosecutor specially designated to prosecute financial fraud cases in federal court. 75

76 Property IRS Currency Reports Cash transactions, for IRS purpose, include the currency and coins of the United States or any other country. Cash may also refer to any cashier s checks, bank drafts, traveler s checks or money orders with face amounts of $10,000 or less. The term Cash does not, in this instance, refer to personal checks. The establishment, maintenance of or contribution to a trust or escrow account falls under the IRS definition of a cash transaction, so must be recorded on a Form For each such transaction, it is necessary to report: Payer's name Payer's address Payer's date of birth Payer's social security number or taxpayer identification number Payer's occupation Type of document used to record payer's identity (driver's license, etc.) along with the issuer and identification number of the document The date the deposit was received The amount of the deposit Whether or not the deposit was received in the form of one of more payments (must still be reported if made in the amount of 2 deposits of less than $10,000 of the totals add up to over $10,000) The form in which the deposit was received, whether US currency, foreign currency, cashier's check, bank draft, traveler's check or money order A Description of the Transaction Generally Form 8300 must be filed within 15 days of receipt of the deposit, or if multiple payments of less than $10,000 are made, filed within 15 days of the total amount of the deposit's exceeding $10,000 Real Estate Case Involving Trust Account Fraud Catherine J. Pellegrini, a former Montesano escrow agent, was sentenced in Grays Harbor County Superior Court on August 1st of 2005 to a jail term of 29 months for embezzling money from the trust account of Ocean Shores Escrow, Inc. She was also ordered to pay $327, in restitution, plus the costs of the witness and attorney fees. Following an investigation by the Department of Financial Institutions (DFI), the Financial Crimes Unit of the Attorney General s Office charged Pellegrini with eight counts of firstdegree theft. Washington State s Mortgage Lending Fraud Prosecution fund allowed the authorities to pursue this case. 76

77 According to the charging papers, Pellegrini purchased the Ocean Shores Escrow in November of 1999 and later incorporated it. She also owned and operated Cornerstone Escrow, Inc., an unlicensed escrow company located in Lacey, WA. After receiving consumer complaints, the DFI opened an investigation into both of these escrow companies. They determined that Ms. Pellegrini used at least five different schemes to steal funds from the Ocean Shores Escrow, Inc. trust account. Bank records revealed that on a number of occasions she withdrew funds via check, wire or express transfer, and deposited these funds into her personal accounts. She also delayed or failed to pay certain closing expenses, such as the Local Improvement District Assessment due to the county. Frequent Violations of License Law Most violations involving designated broker's trust accounts are due to mistakes or oversights resulting in a shortage or overage in the trust account balance. Other violations include: Monthly trial balances not being performed Minimum real estate accounting records not kept Designated Brokers not notifying Department of Licensing of changed office location Deposits not documented by duplicate deposits slips validated by bank imprint which identify source of funds Less frequent but more serious violations include: Commingling Commingling funds is the mixing of the designated broker personal or general business account funds with those the designated broker holds in trust for another. Once trust funds become the designated broker's funds (as commission) they should be removed from the trust account immediately. Conversion Conversion occurs whenever the client's trust funds are used for any purpose other than as they are identified. An example would be a licensee converting funds for personal or business use. A conversion also occurs when the client's funds are used for another client's use to pay another client's expenses, as "disbursement in excess." Failure to return earnest money deposits within 30 days after an owner demands funds is considered " prima facie" (good on its face) evidence of conversion. Even though licensees often wrongly believe they must have a signed rescission agreement before disbursement of disputed earnest money, holding earnest money over 30 days may result in a legitimate complaint to Department of Licensing. When the purchase and sale agreement terminates according to its own terms before a closing takes place, the designated broker may disburse the funds as provided by the agreement without a written release. 77

78 The designated broker also may elect to turn the earnest money over to an inter-pleader with the Superior Court. The designated broker may forfeit any claim to the earnest money, and the buyer and seller may then resolve the matter in court. Because this is an area of frequent misunderstanding, parties should consider obtaining the advice of a real estate attorney. Review License law requires designated brokers to set up a system of records to establish an audit trail of funds received and disbursed to and from each client. This system can be manual OR computerized. If a real estate broker receives or maintains earnest money or client funds for deposit, the real estate firm shall maintain a pooled interest-bearing trust account for deposit of client funds, with the exception of property management trust accounts. This account MUST be kept separate from the broker's business and personal funds. All funds MUST be deposited NOT later than the first banking day after receiving the funds unless the purchase and sale agreement provides for deferred deposit or delivery. In that event, the broker must promptly deposit or deliver funds in accordance with the terms of the purchase and sale agreement. Real Estate Firm/Designated Brokers' trust accounts are required to be interest bearing. The ONLY EXCEPTION is property management trust accounts. The interest, minus reasonable bank charges, MUST be paid to the State Treasurer. The Washington Housing Trust Fund receives 75% of this interest and the Real Estate Education Program Account t receives 25%. Designated Brokers MUST place ALL deposits of $10,000 OR LESS into a pooled account. When the deposit is for an amount OVER $10,000, the designated broker MUST give written notification to the person depositing the funds that they have a choice. The designated broker usually is required to deposit the check no later than the first banking day after receipt BUT there are exceptions. This can occur when the purchase agreement directs the designated broker to hold the earnest money check without depositing it until a particular date OR upon the happening of an event. The designated broker who first receives the earnest money is responsible for handling the funds. The selling firm most often takes the earnest money check when the buyer makes an offer. When the earnest money is to be deposited with someone other than the designated broker, the designated broker should obtain a dated receipt to include in the transaction file. A designated broker may NOT pay business expenses from a trust account. After closing, the designated broker s commission (and commissions paid to cooperating brokers) MAY be paid directly from the trust account by the designated broker writing a separate check for each commission. The designated broker may NOT pay commissions to his/her affiliated licensees directly from the trust account. 78

79 The funds MUST first be transferred from the trust account to the designated broker's general business account. Bank accounts holding client funds must be in the firm name as licensed and designated as "trust" accounts. The designated broker must prepare a MONTHLY TRIAL BALANCE of the client's ledger book. All disbursements of trust funds must be made by check or electronic transfer and identified to a specific real estate transaction. All voided checks must be permanently defaced and retained. Every designated broker is required to keep adequate records of ALL real estate transactions at the main office OR branch office for at least three years after closing. Because of THE STATUTE OF LIMITATIONS, it is advisable to keep records several years longer. The records MUST include a copy of the: Earnest money receipt An itemization of the broker's receipts And disbursement of each transaction These records and ALL other records MUST be available to ALL parties of the transaction and MUST be open to inspection by the Director Most violations involving broker's trust accounts are due to mistakes or oversights resulting in a shortage or overage in the trust account balance. Other violations include monthly trial balances not being performed, minimum real estate accounting records not kept, and brokers not notifying Department of Licensing of changed office location. Less frequent but more serious violations include commingling and conversion. Failure to return earnest money deposits within 30 days after demand is considered evidence of conversion. When the agreement terminates according to own terms before closing, the designated broker may disburse the funds as provided by the agreement without a written release. The designated broker also may elect to turn the earnest money over to an interpleader with the superior court. Introduction In order to be profitable, the real estate firm must bring in more income than it takes to pay all 79

80 expenses. In most brokerages, the vast majority of the brokerage's income comes from either the agent's production or from desk fees. For this reason, agents are considered the "lifeblood" of the real estate firm. The designated broker can increase income from agents in two ways. One way is to improve the production of the existing agents, and the other way is hire more producing agents. Most designated brokers implement programs for both methods by providing ongoing training for existing agents, and actively recruiting new and veteran agents. Even though it may seem easier to simply improve the production of the existing sales force, statistics show that there are averages in the industry that a designated broker may use to gauge potential income based on the local market and an average number of transactions per agent. Even though a designated broker will naturally want to help their agents increase their "per person productivity," it is still important to most designated brokers to have enough agents to produce a certain amount of income on an average monthly basis. Recruiting, as well as retention, should be an everyday, continuous and ongoing activity. It is the job of the manager to recruit every day. For any recruiting system to work effectively, it must be done consistently and always before the need arises. Types of Brokerages There are as many different types of real estate companies as there are owners of these companies. They can differ greatly in the services that they provide to the public as well as in the services and benefits they provide to their agents. The public can choose from special services such as: Specialization in niche areas or particular types of properties such as waterfront, commercial, income properties, residential, land, etc. Specific types of agency relationships such as buyer agency, facilitator, seller agency, etc. Or related real estate services such as finance, title insurance, escrow, etc. Agents can choose from services such as: Different types of commission splits. These usually are based on services offered by the designated broker and production of the agent Training such as in-house training, continuing education, continuous updating, mentoring Support services such as secretarial, reception, computers, and referrals, follow up MLS and trade association membership and other agent benefits such as incentives, location, opportunities, etc. Small Office 80

81 The small office usually attracts agents that are experienced and productive. They enjoy the social and professional closeness of the agents and designated broker. The small office attracts experienced agents and requires less overhead, so the designated broker can sometimes offer a higher commission split to the agent. For training, a small office might send agents to an off-site program or offer some type of one-on-one mentoring with the designated broker. A new agent should ask, if the designated broker has an open door policy and is available and willing to give assistance and be involved in solving problems. A disadvantage could be the lack of available time for training and supervision of inexperienced agents because of a limited amount of available staff. In a small company, the company s success will depend on the designated broker s management skill, and the ability to effectively compete with larger companies. The designated brokers of smaller companies are also more likely to compete with the agents for listings and sales. This means that if the designated broker is dependent upon income from his/her own personal production, and that production fails, the company also may fail. Large Offices In a large office, the large number of agents, management and staff naturally can create excitement, creativity and team spirit. With a large number of agents and staff, the designated broker should be very organized and have a professional and positive attitude to guide the company. The designated broker should be there to give direction and maintain the standards of high quality service. A designated broker of a large company should work well with managers, track production, carefully watch over company income and expenses, and oversee the training. The designated broker should be creative in finding new ways to improve production and increase profit. A policy and procedures manual and all personnel records should be constantly updated and maintained by the designated broker. The large real estate company is dependent upon the production of a number of agents and will often have one or more branch offices. These companies can be very exciting and stimulating because of the diversity and number of agents. There is often opportunity for promotion into management and other fields within a large diversified company. 81

82 Having a large number of people under one roof also can have its disadvantages. There is certainly more liability for the designated broker, as well as a larger overhead, requiring more income and management skills. Policies that are necessary to effectively manage a large number of agents also might create some limitations or reduce the amount of time the designated broker can personally spend with the agents. However, because the number of agents is large, the agent might actually have more available and diversified interaction. Important Characteristics of All Companies No matter the size of the company you choose, some common factors for success are the reputation of the designated broker and the company, and the quality of service provided. It should be a win-win for the agent and the designated broker. The designated broker should assist the agent and expect the agent to be productive, and the agent should take advantage of the designated broker s assistance and expect to produce income for the company as well as the agent. The support of professional and efficient management is important to all companies. The company must produce enough income to effectively operate, remain competitive, and provide high quality services. In all companies, supervision and training are also of extreme importance. The company you chose should have a professional image, high quality service, and display pride, ethics and team spirit. Independents and Franchises Independent companies have often spent years building a name and reputation. One advantage they have over franchises is that they do NOT have to charge a franchise fee, although many do charge an equivalent fee. A new agent may feel that being identified with a nationally or locally recognized franchise name may be important in establishing credibility. The client may NOT know the new agent, but they DO know or at least recognize the large franchise name. This can be an advantage while the newer agent builds a name for him/herself. Franchises also can offer the designated broker advantages by using portions of the franchise fees to defray or reduce the cost of advertising, or to provide national television and other types of advertising that would otherwise be too expensive. 82

83 Types of real seller s Services to Clients The major service offered to clients is representation. The estate company may represent either the sellers as the agent, OR the buyer as a buyer s agent. When the designated broker represents both parties, it is called dual agency. There are designated brokers who ONLY represent buyers. These are exclusive buyer s agencies and are a fairly new form of client service. Niche Marketing and Specialization There are more real estate companies that specialize in residential property than any other type of property. Other types of real estate companies include designated brokers and agents who are experts in their fields, such as waterfronts, condominium or farms, and ranches. Specialization can help a smaller company capture a large market share. Often, clients will go to a company that specializes in the type of property that they want to sell or buy. Example Mr. and Mrs. Dennis are selling their custom log home. They want the services of an experienced agent and decide to list with Rustic Homes. They feel more secure with a company that knows how to advertise, market and expertly show their property. The Dennis know that Rustic Homes specializes in log homes and rural property, and can generate the best results. Where to Find Recruits There are many places to find new people to bring into your business. Some come from other careers outside the real estate business, some are past buyers or sellers, and others may be ready to make a change from another brokerage. In-House Education Many companies have an in-house real estate school which attracts a steady flow of students who may later affiliate with the designated broker, as well as agents who need to take required clock hours. New students and visiting agents from other companies spend up to 60 hours in the designated broker's office, socializing with the designated broker and his or her agents which gives the students, agents and designated brokers an opportunity to become acquainted. 83

84 With in-house education, designated brokers can offer their own agents and students competitively priced continuing education and pre-license training. Career Change People looking for a career change often have valuable skills because of their prior career background, even though they may not have sales experience. Downsizing has played a part in bringing in corporate executives. These people are often great candidates for a new real estate career because they typically have funds set aside to tide them over while building their new business. They also tend to enjoy the freedom that a real estate career can provide by not having to be dependent on the corporation cutbacks or youth-favored job market hiring. These "life-experienced" people can become very successful within a much shorter time frame than a non--experienced new agent. Brokerages Although designated brokers often spend a great deal of time and effort attempting to lure agents from other companies, most good agents will not leave unless there is a serious problem with their current company or designated broker. Agents who are lured away with flattery or promises of higher splits also may tend to leave the new company as soon as a better offer comes their way. They also may want to make a change in companies because they weren't doing well. Of course, there are exceptions, such as the agent who is successful but may have made a bad choice and prefers the qualities and policies of your company. When a high producing and/or well liked agent leaves a company, it is common for others to follow that agent to the new company. Good recruiting managers keenly are aware of this and take full advantage when the occasion arises. Once the new recruit is established within the new office, the recruiting manager will begin a system of contact with the agent's former co-workers, inviting them to have lunch or to come in for a personal tour. The agents may be curious why the agent left and more inclined to accept these invitations. Higher commissions, more referrals, support staff, and lower costs are examples of inducements offered to agents to switch companies. The more productive the agent, the less likely they are to leave. Just because an agent is experienced, does not necessarily mean that he or she does not need training. In fact, some of these agents may require more training, or re-training, than a new agent. The agent may have come to your company believing that the former company was to blame for his or her low production, when the real reason was because the agent was not suited for sales or had a 84

85 low level of drive and ambition. Other Brokers Occasionally, a designated broker may be considering closing his or her business and going back into sales and listings. This is sometimes the case with a top-producing agent who opened their own business, and then missed the excitement and independence of being an agent. The expense, overhead, added responsibilities and liabilities could be a less profitable option than working as an agent. Experienced designated brokers are often thrilled to return to working with buyers and sellers, making top money, all without the headache of management problems and or overhead worries. Advertising Newspaper advertising can be effective, if properly written to attract a large number of calls. A large ad, looking for a number of agents on an urgent basis can make the company look as though it is in danger of closing. Recruiting should always be done consistently when you don't "have to, rather when you "have to." The newspaper ad should run on a regular basis, and appear to be somewhat selective. The manager should have a pre-written questionnaire with critical questions available to eliminate callers who are not serious or prepared. Career Night Another method is to run a "Career Night" ad. This could be done on a weekly, monthly or quarterly basis. The ad invites interested people to call and make a reservation for an informal question and answer session. This session can include a presentation, tour of the office, refreshments, and lots of attractive informative brochures. Company brochures should feature the benefits of a real estate career such as the high income potential, independence, investment opportunities, helping people, challenges, rewards of new relationships, and contacts. The materials also must showcase the company's benefits and advantages, such as support staff, affiliations, management opportunities, reputation, market share, training, relocation and referral service, branch office locations, franchise membership, advertising and promotion, and social activities. Your Agents Your own agents are often wonderful sources of new recruits. They can tell the manager when someone they know is starting real estate school or possibly thinking about getting into real estate. Some companies offer incentives to their own agents to recruit other agents, but other designated brokers believe that there's no need to pay agents to do this, if the agent is "sold" on the company. These designated brokers feel that if their agent's believe they are at the best company in town, they will convince other agents to join without being compensated. 85

86 Clients and Customers Your past and current contact clients and satisfied customers also can be a source of new recruits. If nothing else, customers are often complimented when invited to join the company. They have just been through a real estate transaction and may have already picked up some knowledge and enthusiasm for the business. There are many agents in the business today who were influenced by the agent they dealt with when buying or selling their home. 30 Day Plan Month of Goal: To increase production and net company dollar by minimum of % Question: Where are we now? 1. Average monthly year to date company dollar amount 2. Last month's company dollar amount. 3. Was last month higher or lower compared to year to date monthly average? 4. To what do you attribute this? 5. What was the average per-person production last month? 6. Based on last month's per-person production, how many agents are required to produce $ per month company dollar? 7. How many licensees do we have as of today? 8. How many additional recruits are necessary to produce $ average company dollar? 9. Attach your list of agents you are currently targeting for recruitment. Attach your plan of action to recruit these agents (pro-active: such as phone calls, open house visits, personal follow ups from flyers or letters - or passive: such as invitations, mail outs, ads, etc.). Who is showing interest? Do you need help? Any suggestions to increase attraction? Determining the number of affiliated licensees necessary to meet production and profitability goals for a real estate firm. Let's explore processes for determining the number of affiliated licensees necessary to meet production and profitability goals for a real estate firm taking into consideration licensees who produces a steady but lower number of transaction, as well as the highest producers. How many agents does it take to reach a monthly and annual goal? Taking the number of agents, divided by total dollars of monthly production would will give you average. However, a designated broker needs to recruit and retain enough producing licensees to 86

87 meet current and future fiscal goals. It is unrealistic to believe that every licensee hired will be a high producers. A more conservative and practical method may be to start with a "total needs" budget by using dividing your total production and profit goals by the production of the lowest producing licensee per month or a quarter. Use this number to calculate how many licensees are needed to produce enough income to meet these goals. Successful recruitment and retention is one of the keys to a success brokerage Selection Your "minimum production requirement," if you have one, is the amount that your lowest producers average per month. If this were not true, your lowest producer, and all others who do not reach your minimum requirement, would not still be licensed in your company. If you tend to hire and keep low or minimal producing agents, morale problems increase and it will be more difficult to motivate others to join your company. The more selective the designated broker is in hiring agents, the more honored and motivated agents will be to join the team. Being selective also lessens risk of customer complaints, personality problems, and even litigation. Of course, if the designated broker sets standards that are too high, there may be too few to choose from. In this case, there may be room for a little more flexibility. On the other hand, if numerous agents are hired, but they produce very little and turnover is high, the standards may be set much too low. Top producers typically want to work with other top producers. Although a top producing agent may be a great role model for a new, or lower producing agent, the top producer was not hired as a trainer or motivator and probably does not have the time or patience for it. Agents with less drive, or those who use the office setting for personal chit-chat, gossiping or complaining can be very annoying and detrimental to the higher producing agents. Eliminating non-producers usually makes the recruiting of other high producers much easier. It is also a good idea to watch where your low producers go to work after you have de-hired them. Recruiters know that high-producers do not usually remain in offices that seek out or take in low or non-producers. The high-producers in the office that takes in your non-producers may be a good source of new recruits. This de-hiring process can draw in the best agents, boost company morale, and result in increased profit. This is not to suggest that designated brokers shouldn't bring in new people. However, the new agents should be provided with a period of intensive training and hands on experience to cultivate their skills. 87

88 After training, if the agent is not producing your company minimum within a reasonable time frame, the de-hiring system should be considered. Although termination or de-hiring is never easy to do, top managers know that if salespeople aren't pulling their weight, they're increasing your costs and lowering your profit. Retaining Agents Retaining good agents is extremely important. It is easier to count on production from experienced agents, than to gamble on the success of new agents.,agents expect and deserve loyalty, honestly and kept promises. Many agents leave only when they felt (right or wrong) that their designated broker, company or manager let them down. Agents seldom "jump ship" when there is good communication, mutual respect, rewards, recognition, and personal attention between agent and management. It is just as important to "do what you did to get them," as it is to keep them. Incentives to Stay Designated Brokers can do many things to retain good agents, but it is often difficult to know the personal needs and motivations of every individual. However, the following may be helpful to keep agents productive, satisfied and loyal. 1. Have an "open door policy" and be accessible and attentive. 2. Provide up to date services and tools to help agents become and remain competitive and productive 3. Offer attractive financial incentive, commission splits, or competitive desk fees. 4. Offer in-house or personalized training and ongoing education. 5. Provide advice and counseling on individual needs. 6. Always be honest and fair with all agents - no favoritism. 7. Continually "sell" your agents on your company's advantages and benefits, making them feel pride that they are at the best company in town An often painful, but almost always unavoidable occurrence that comes with the role of being the designated broker is the emotion and sense of loss, betrayal or failure, when an agent leaves. This is especially true when the relationship was long term and/or friendly, and the designated broker truly believed the agent was happy. Of course it is a financial loss as well, but even though the brokerage is a business, it is a "people business" and when an agent "jumps ship" it can be emotional as well as a potential danger that others may follow. When an agent leaves, the designated broker should try to determine why the agent left. This may be an important factor in making certain that other agents are not influenced to follow. Where there "warning signs"? Complaints Dramatic drop in production Arguments or demands being made 88

89 Did the agent feel (whether realistic or not) that he or she was not treated fairly? Was the agent rewarded with "strokes" or compliments when deserved? Did the agent feel needed, respected or important to the company? If a good agent leaves, the designated broker should look into the reasons and learn from the loss to prevent other salespeople from leaving. Good recruiters know to "target" offices where a top producer has just left. It is important to keep spirits high and be attentive to the needs of the remaining agents. Good advice is to focus on all of the positive attributes of your company, not dwell on the past, keep spirits high, and show appreciation for loyalty. The Broker-Agent Contract and Records To qualify for independent contractor status, the designated broker-agent must be in the form of a written contract. If the relationship between designated broker and agent is employer-employee (not common), an oral agreement is lawful, although not preferred. In either case a clear and comprehensive policy and procedures manual are considered extremely important. The designated broker-agent independent contractors contract agreement can be a "standard form" or the designated broker's own contract, but it should first be reviewed by the designated broker's attorney. Each contract may be different to suit different functions and negotiations of agents or staff. Important Points in the Independent Contract's Agreement Establish the identity of parties and their employer-employee or designated broker-independent contractor status Specify all obligations of each party State the manner, method and frequency of compensation State commission split and expenses paid Incorporate policy and procedures manual Specify the limitations of agent's authority State causes and manner of termination Describe rights of agent to commissions after termination Specify any services and benefits provided by designated broker Specify the length of the contract term Identify designated broker by individual name and business name establishing fact that designated broker is duly licensed and actively engaged in business as real estate designated broker under state laws Identify agent by name Agent must agree he/she is duly licensed under state laws 89

90 Designated broker has supervisory responsibility over agent Agent cannot control real estate activities of designated broker Agent is subagent of designated broker with respect to clients and customers possessing only those powers expressed in agreement IRS wording to give agent independent contractor status Agent is not an employee, or partner with designated broker, and will not be treated as employee for IRS or state tax purposes Designated Broker agrees to make listings available to agent, and assist and cooperate with agent by giving advice and instruction Agent agrees to work diligently and use best efforts in designated broker's name Agent agrees to promote designated broker's business to derive greatest profit Agent agrees to perform in manner that will maintain reputation of agent and to increase designated broker's goodwill Parties agree to abide by all laws, rules, regulations, and codes of ethics binding upon or applicable to real estate licensees and agents in dealings with each other, public, other designated brokers, and agents Commissions charged for real estate service are negotiable Established commission schedule as company minimums, if any Description of expenses not paid by designated broker such as surveyors, experts, specialists, accountants, attorneys, use of long distance telephone, and telegraphic service or other expense Describe how costs considered to be part of cost of transaction, could be shared and paid out of commission Describe how listing fee paid to agent, and how selling agent, are entitled to share of commission Rules for extra expenses taken out of commissions Attorney's fees and costs incurred in trying to collect commission, often paid by designated broker and broker in same proportion with regard to commission split for transaction Rule for 2 or more agents working on transaction together, share of commission received based on agreement, or if no agreement, amount determined by arbitration Rule for agent selling property owned by designated broker, and compensation agreed upon by designated broker and broker Rule for property owned by agent sold through designated broker's organization Designated Broker not obligated to pay any part of commission to agent unless commission collected by designated broker Specify how designated broker agrees to settle commission split with agent when transaction closed and commission collected, or if commission deferred Statement that only designated broker may elect to accept notes, mortgages or securities when seller or client is unable to pay all or part of commission owed in cash If designated broker does accept note, mortgage or securities, not liable to agent for amount until paid Specify that agent has no authority to bind designated broker by any promise or representation unless specifically authorized in a particular transaction Agent to have no authority to hire anyone in any transaction or to incur expenses without designated broker's prior written approval All advertising must be under the direct supervision and in the name of designated broker All offers to purchase, exchange, option, rent, lease, or forfeit obtained by agent must be submitted immediately to designated broker for review Closings must be handled by designated broker or under designated broker's direct supervision Any suit for commission must be in designated broker's name Agent cannot forfeit or declare forfeited earnest money deposit 90

91 Designated Broker has the right to cancel any transaction signed by agent at any time Designated Broker can release parties to a transaction, return deposits of earnest money and documents and settle, adjust and compromise lawsuits, actions, disputes, and controversies without agent's consent and without entitlement to any claim against designated broker for lost commission If charges are made or lawsuit filed against designated broker because of agent's conduct in transaction, agent must pay expense of defending against those claims or lawsuits, pay any judgments entered in lawsuits, and keep designated broker harmless from them. Agent agrees to furnish own transportation in order to accomplish functions and is required to carry, maintain and keep in effect, at own expense, auto insurance covering agent and designated broker against all liability for damage to persons or property in connection with use and operation of cars in business Designated Broker to specify minimum amount of coverage required for bodily injury to one person, minimum required for injuries to all persons arising out of any one accident, and minimum amount required for property damage Agent required to provide designated broker with evidence of fact insurance in effect If controversy between agents in designated broker's firm and unable to settle between themselves, designated broker will act as arbitrator and the decision is final and binding In the case a dispute between agent and designated broker cannot be, it will be submitted to arbitration before board of 3 arbitrators. State the arbitration rules. State that either party may terminate contract for any reason at any time by giving notice If contract terminated, broker will not lose right to commissions earned prior to termination. Contract may be terminated while arbitration proceedings pending Upon termination, agent must return to designated broker all documents, writings and property belonging to designated broker Listings provided by agent are and will remain the absolute property of designated broker 91

92 SAMPLE REAL ESTATE FIRM / REAL ESTATE BROKER CONTRACT On this day of 19, SAMPLE REALTY, as Firm and as Broker hereby agree as follows: 1. STATUS OF PARTIES: Firm and Broker hold required license for real estate brokerage activities and real estate sales activities respectively. 2. EFFECTIVE DATE: This agreement is effective as of the day of BROKER AGREEMENT: Firm hereby retains broker as a broker to perform real estate activities in accordance with the terms of this agreement. 4. DUTIES OF BOTH PARTIES: Both parties agree to cooperate and use their best efforts in negotiating real estate listings and sales. 5. TIME TO BE DEVOTED BY BROKER: Broker may have other pursuits and perform services for others provided salesperson agrees not to work for any other real estate firm and not to negotiate and make sales or rentals or lease of property of third parties in broker's name or on broker's own behalf. Broker may devote such time as broker sees fit to performance of obligation hereunder. Under no circumstances either at any time during the period of this agreement or thereafter, shall broker engage in any pursuit or activity, whether for compensation or not, which breached his or her fiduciary relationship with seller and/or buyer and /or lessee and/or lessor in any real estate transaction--such activities include but are not limited to disclosure of clients addresses to be used for solicitation or mailing lists for other businesses. 6. DUTIES OF THE FIRM: Firm agrees to pay for advertising approved by firm and make facilities and office available to broker and furnish necessary forms and stationery. 7. PAYMENT TO BROKER: The sole consideration to be paid to broker for services is by way of a portion of commission earned and received by firm on listings, sales, or leases negotiated by broker. Broker's percentage of commissions may be varied from time to time but only pursuant to written amendment to this agreement. No oral amendment shall be valid. There is no guaranteed minimum amount of consideration to be paid to broker and broker is not entitled to and will not be allowed to draw against commission becoming payable in the future. Brokers are not eligible for sick pay. Unless involved in dispute, payment to broker is to take place as soon as firm is entitled to rely on the fact that checks for commissions have been honored or on specified dates as otherwise agreed between firm and broker. No minimum quota of sales is expected from broker. 8. STATE LAW AND BY-LAWS AND RULES OF MULTIPLE LISTING ASSOCIATION: Both parties agree to abide by all applicable statues of the State of Washington relating to real estate brokerage and all lawful by-laws, rules and regulations of any Board of Realtors and multiple listing trade association to which firm may belong. 9. EXPENSES: Broker shall pay all expenses incurred by broker in connection with performance of broker's work hereunder. SEE COMMISSION AGREEMENT. 10. BUSINESS AND OCCUPATION TAX: State statute and City of Spokane municipal ordinance require payment of taxes on gross receipts by all service business (rate varies). State and City of Spokane taxing authorities require payment of said tax on all receipts of both firm and broker to be paid by firm. 92

93 Method for computing expenses for B&O and any other expenses will be in accordance to Washington law, and is attached to the commission agreement. 11. WORKMAN'S COMPENSATION: State law requires real estate brokerage businesses to pay premiums segregated as to (a) industrial insurance (b) medical aid; and (c) supplemental pension. State taxing authorities require payment of the entire premium to be made by real estate firm based on hours of performance by broker pursuant to this type of agreement. State law prohibits firm from receiving reimbursement from industrial insurance portion of premium. State law permits reimbursement to firm by broker of their portion of premium portions due to medical aid and supplemental pension. Broker agrees to so reimburse firm for their portion. 12. TRAINING: Firm may offer to perform training for recipient pursuant to current state law and further training. Broker shall be entitled to receive any such training as offered by firm but is not required to do so; provided of course, that failure to abide by state law as to training will result in such action concerning broker's license as said law specifies. Failure to attend such training sessions shall not be considered in evaluating broker's performance. Agents acknowledge that firm has or will provide company training to all new agents. Agent agrees to reimburse SAMPLE REALTY, if the agent leaves SAMPLE REALTY prior to 18 months from receiving training, and remains within the market share area as an agent for any competitor. Reimbursement is as follows: If agent leaves prior to the completion of the agreed training/coaching contract which has been signed and agreed to by agent and SAMPLE REALTY, agent will reimburse SAMPLE REALTY in full. This amount will be reflected in the agent's account receivable, and agent agrees to satisfy their account prior to leaving (see termination). 13. COMPANY GENERATED LEADS: Priority will always be given to the listing agent on incoming calls. When the listing agent is not readily available, or does not respond to the call in the allotted time period, these leads will be given to agents on an "on call" basis, as company generated leads, at a referral rate. Agents may choose to be "on call," and are not required to do so. However, failure to respond to a call, after volunteering, shall be reason to remove agent from list, and the next available agent will be given the lead. 14. SALES MEETING: Firm may give notices concerning sales meeting for the benefit of broker. Broker may as broker sees fit, attend such meetings. Sales meetings are to be considered an important source of information, and attendance is strongly encouraged. Failure to so attend shall not be considered in evaluating broker's performance. 15. GROUP LIFE, MEDICAL OR HEALTH INSURANCE PLANS OR RETIREMENT PLAN: Firm does not and will not make available for broker any life, medical, disability, or health insurance or retirement programs of any nature. 16. SUPERVISION AND REPORTS: Except as required by state law and rules and by-laws of multiple listing association to which firm is member, no reports are to be made by broker and no supervision will be undertaken by firm. The Firm may from time to time provide the broker with income and expense and production reports. Broker is expected to endeavor in such a manner as broker sees fit and firm has no right to and will not control, except as required by state law, the method of so performing by broker. It shall be the Firm's responsibility to follow through all transactions until closing and disbursement of commission checks. 17. AUTOMOBILE INSURANCE: Broker agrees to carry not less than minimum state law requirements or such additional coverage as firm may require of automobile public coverage designating SAMPLE REALTY as additional named insured--100/300/50, BROKER BUYING OR SELLING ON OWN BEHALF: 93

94 All purchases and sales of property, whether listed for sale with SAMPLE REALTY, another company, or not at all, must include a commission to SAMPLE REALTY to be computed as 10 % of 6 % of the sales price. All transactions must be approved by the Firm in advance and must be handled through the Firm's office. If a broker is purchasing a property obtained though a referral or past client of the company, the company shall have the right to participate on an equal basis with the broker. This participation does not apply to property obtained by a broker through his own efforts in the field unless the broker desires it. 19. EXTRAORDINARY EXPENSE OF SALES: In some instances, extraordinary expenses and deductions will occur in connection with a sale or lease. A deduction from commission might be granted to a seller or paid to a buyer to resolve a dispute. A multiple listing arbitration may result in a deduction of all or part of a commission. Broker agrees to pay his or her proportionate share based on his/her commission split, of such expense or deductions whether incurred before or after disbursement of commission. The designated broker of SAMPLE REALTY must give authorization in writing to the broker before the broker makes any reduction in the total commission due to SAMPLE REALTY. In the event that there shall be a deduction in the total commission, it shall be understood that the amount of the deduction will be taken off the normal amount due to SAMPLE REALTY, then shall be split on whatever the broker split is at that time. The broker is not to agree to take any commission under a deferred plan without first getting permission in writing of the office manager of SAMPLE REALTY branch of which they are licensed under. In the event the commission is taken under a deferred payment plan with monthly payments, it shall be understood that SAMPLE REALTY shall be named on the note secured by a deed of Trust, along with interest in the amount of 10 per annum. Contract payments will be paid to broker every month. In the event the sale contract payments are to be more than four months then the broker's split shall be 50/50 no matter what split they are currently on. If said contract is paid off in four months then the broker shall receive whatever commission split is on at the time the contract payment is received by SAMPLE REALTY. 20 ARBITRATION: In the event a dispute arises between brokers in the office, the firm shall arbitrate and resolve the dispute at his/her discretion, and his/her decision shall be final and binding upon the parties. In the event of a dispute between Firm and Agent, agent agrees to a binding arbitration process to resolve all/any differences/legal issues, etc., as the only recourse to eliminate litigation. Agent may select any 2 local established arbitration companies and the company may select one. The prevailing party shall be entitled to reimbursement of the arbitration fee. 21. AMENDMENT: All amendments to this agreement must be in writing and signed by both parties. 22. TERMINATION: The Real Estate brokerage service is a profession. In view of the professional relationship between the parties, it is agreed that either party may terminate this contract forthwith and at will without cause. Such termination shall in no manner deprive broker of any earned but unpaid share of commission hereunder. Broker will revert to 50% of the gross commission received by SAMPLE REALTY (see commission agreement). Upon termination, broker agrees to return to firm all listings, keys to office, lock box keys, and other sales equipment and supplies. Any money owed Firm after termination will still be owed, and the necessary security agreements will be signed. 23. ACCOUNTS RECEIVABLE: SAMPLE REALTY has established an accounts receivable system for each broker for such items as MLS dues, etc. It shall be understood that the bookkeeping department of SAMPLE REALTY will send a copy of each brokers outstanding balance monthly. The total balance due shall be paid to SAMPLE REALTY no later than the 5th of each month. Broker hereby irrevocably assigns to 94

95 SAMPLE REALTY, broker's share of any commissions earned to the extent necessary to pay off broker's accounts receivable balance at the time of receipt of any commission. 24. RELATIONSHIP OF THE PARTIES: Tax Equity and Fiscal Responsibility Act of 1982 Code 3508: Nothing contained herein shall be construed to create the relationship of employer and employee between the firm and broker. BROKER UNDERSTANDS AND HEREBY ACKNOWLEDGES THAT HE/SHE WILL NOT BE TREATED AS AN EMPLOYEE WITH RESPECT TO THE SERVICES TO BE PERFORMED HEREUNDER, FOR FEDERAL TAX PURPOSES, BUT WILL CONDUCT HIS/HER SERVICES TO BE INDEPENDENT CONTRACTOR. Broker further understands and acknowledges that firm will not withhold taxes or make social security, unemployment insurance, disability insurance or other contributions for or on behalf of broker. Broker shall be solely responsible for the estimation and timely payments for any federal or State income tax or other tax on his/her earnings hereunder. 25. CANCELLATIONS OF EXCLUSIVE LISTINGS: Firm shall have the sole right to cancel any exclusive listing agreement on any property at any time by giving notice to Broker and Seller. 26. FIRM, BROKER RESOLUTIONS: Where SAMPLE REALTY determines that a broker owes money to SAMPLE REALTY for any reason, SAMPLE REALTY shall have a lien upon any commissions due to the broker and the right to offset sums due SAMPLE REALTY against commissions due to the broker. In the event SAMPLE REALTY must retain an attorney to collect sums, losses, or damages owing to SAMPLE REALTY by the broker the broker shall pay the attorney and accounting fee charged by the attorney and accountant and in the event suit for collection is initiated for any reason under this contract between SAMPLE REALTY and the broker, venue shall be Spokane County and the prevailing party shall be awarded interest, court cost, costs of suit, and reasonable attorney fees. 27. AUTHORITY TO CONTRACT: Broker shall have no authority to bind, obligate, or commit firm by any promise or representation, unless specifically authorized by Firm in writing in a particular transaction. 28. BROKER INDEMNIFICATION AGREEMENT: Broker shall indemnify, defend and hold harmless SAMPLE REALTY and their officers, directory, and employees against any and all loses, claims, demands, including reasonable attorneys fees and court costs, arising out of any gross negligence, misrepresentation, knowingly or unknowingly, negligence, malfeasance or misfeasance, willful misconduct, violation of law. However, the broker's duty to pay money shall be shared with the firm prorata per the commission split at the time the transaction closed. 29. CLAIMS, DEMANDS, SUITS: The Designated Broker in the State of Washington may be held responsible for the actions of all brokers licensed under the Designated Broker. It is hereby agreed that the undersigned broker shall be responsible for his/her alleged respective individual actions and/or errors. Therefore when a claim, demand and or suit is brought against the broker and/or SAMPLE REALTY and the broker agree to share the costs of the legal fees, attorney fees, court cost, cost of settlement of any all claims, future judgments awarded by a court and/or by an out of court settlement of any nature through a claim, demand or suit, based upon what the commission split that the broker was paid on at the time the transaction involved in the claim, demand and or suit closed. In the event the broker fails to pay his/her portion of any claim, demand and/or suit upon demand by SAMPLE REALTY, the designated broker of SAMPLE REALTY is hereby authorized to withhold and or deduct the broker portion of any said claim, demand, and/or suit from the commissions of any outstanding pending transactions that the broker has due. In the event the broker has no pending transactions to withhold or deduct from, said broker hereby agrees to sign the necessary security agreements with SAMPLE REALTY to settle their portion of any said claim, demand and or suit. The broker hereby gives the designated broker of 95

96 SAMPLE REALTY the sole right to settle any and all claims, demands and or suits brought against SAMPLE REALTY and or broker for the broker's individual alleged actions and/or errors. It is agreed that the designated broker of SAMPLE REALTY has the sole right to choose the legal counsel to represent SAMPLE REALTY, its designated broker, and the broker herein. It shall be further understood that if the broker shall become licensed with another firm in Washington and or any other state, and /or if that he /she lets his/her license expire due to non payment and or any other reason, associate is responsible as stated above for any demands and or suits including reasonable attorneys fees, court costs, lawsuits arising out of any negligence, misrepresentation, knowingly or unknowingly, gross negligence, malfeasance or misfeasance, willful misconduct, violation of law or any other act of said broker which he/she was licensed under SAMPLE REALTY as a broker, managing broker, or Designated Broker. 30. COMMISSION AND NOTES: It is agreed that the broker must have written authorization from the designated broker of SAMPLE REALTY, if he/ she chooses to take any portion of the commission due to SAMPLE REALTY on a note or in any timely manner. The broker herein gives the designated Broker of SAMPLE REALTY the sole right to settle any and all claims, demands and or suits that SAMPLE REALTY may choose or not choose to bring against any seller or purchaser for any unpaid notes or commission amounts. It is agreed that the designated Broker of SAMPLE REALTY has the sole right to choose the legal counsel to represent SAMPLE REALTY, its designated broker, Branch Manager, and broker herein, in the event suit or collection actions are brought forth against a seller or purchaser for any unpaid note amount or commissions due to SAMPLE REALTY. The broker further understands that the designated Broker or Branch Manager of SAMPLE REALTY shall have no responsibility to notify the broker herein for any foreclosure notices received, or for any unpaid note or commissions due which have not been paid. The broker shall have full responsibility to follow-up on notes and commissions due to see that they are being paid in a proper manner. Further, the broker herein agrees to hold the designated broker and Branch Manager of SAMPLE REALTY harmless for any note amount and or commission amount that is not paid, in any manner, including a deferred payment plan secured with a note and deed of trust. The parties agree that the designated broker shall have the sole right and discretion to decide not to pursue any collection against a commission payor who defaults. All commissions deferred shall be secured by a deed of trust whenever possible. By signature hereunder, the broker acknowledges his/her acceptance of this contract and agrees to the terms incorporated herein. Date Date SAMPLE REALTY Manager Sales Associate The Hunt For A Company What Matters Most To Agents Company's image with consumers 18% 96

97 My designated broker's ethics 13% My compensation plan 13% My designated broker's business philosophy 11% Other brokers in my company 9% Company's philosophy 8% Company's size 7% Company's technology support 7% Company's advertising support 6% Company's secretarial support 6% Company's transaction coordinators 2% Source: NAR Research, Recruiting and Retaining the Best, 1996 Their Current Designated Broker Top Salespeople Say They Like Most About Their Current Company Is Its Image. Company's image in the market 85% Office support staff 54% Company-provided MLS access 53% Company's market share 51% Company's advertising 37% Company's referral network affiliation 36% Sales manager support 36% Franchise affiliation 31% Company-provided education or training 30% Company-prepared marketing materials 26% Company-provided non-mls computer access 22% Source: NAR Research, Recruiting and Retaining the Best, 1996 Their Current Designated Broker Top salespeople say what they like least about their current company is its advertising support. Company's advertising support 18% Company's technology support 15% Company's secretarial support 10% Company's image with consumers 9% My compensation plan 9% Other 8% Company's size 8% Company's transaction coordinators 7% Nothing 6% My designated broker's business philosophy 5% Other salespeople in my company 2% Company's philosophy 2% My designated broker's ethics 1% Source: NAR Research, Recruiting and Retaining the Best, 1996 Retaining Top Producers 97

98 What makes me stay? Money is the biggest motivator of top salespeople. Income 44% Family 23% Recognition 16% Feeling successful 10% Helping others 5% Other 1% Source: NAR Research, Recruiting and Retaining the Best, 1996 Their Future Real Estate Firm What Would Make Me Leave If they were offered a better commission split, one-fifth of top salespeople surveyed say they'd leave their current firm. 98 Better commission split 21% More support services 20% Better match on business philosophy 15% Nothing 15% Better company image 12% Other 12% Company's advertising support 5% Source: NAR Research, Recruiting and Retaining the Best, 1996 Wow! There were 15% that said NOTHING would make them leave. Of course, this is highest goal of the leader. Use this study as a check up guide for your company's policies. Educational Level Eighty-eight percent of all REALTORS' have had at least some college, and 42 percent have gone on to pursue bachelor's degrees and other advanced degrees. Highest Education Level for Salespeople Some High School 3% 4% 2% 1% 1% * High school graduate Some college/associates degree Bachelor's degree Graduate study

99 13 17 # Graduate degree and above ## ## *Less that 1 percent #Included in bachelor's degree ##Included in graduate study Source: An Executive's Guide tor REALTORS '. NAR Membership Profile 1996 Life Before Real Estate Nearly one out of five REALTORS were in management before entering the real estate industry. Six percent of salespeople say real estate was their first career. Prior Full-Time Careers of REALTORS Percent Distribution Other 28% Management 19 Sales 13 Administration 9 Homemaker 8 Education/teaching 7 Real estate 6 Marketing 4 Medical 4 Military 2 Source: An Executive's Guide to REALTORS : NAR Membership Profile, 1996 Salespeople's Age Creeps Higher The age of the typical salesperson, approximately 48, has risen only slightly since 1993 when it was 46. Age or younger 15% 13% 12% 11% 7% 6%

100 or older Median age Source: An Executive's Guide to REALTORS'': NAR Membership Profile,

101 Professional Designations Up Forty-five percent of all REALTORS have a professional designation up 14 percentage points since a 1993 National Association of REALTORS study of the topic. The increase is due to a surge in the number of brokers and salespeople acquiring the Graduate, REALTORS Institute (GRI) and Certified Residential Specialist (CRS ) designations. Designation Brokers/ Broker Salespeople Associates Graduate, Realtor'' Institute (GRI) 40% 19% Certified Residential Specialist (CRS ) 20 7 Certified Real Estate Brokerage Manager (CRB) 4 * Certified Commercial Investment Member (CCIM) 1 * Society of Industrial and Office REALTORS (SIOR ) 1 * Leadership Training Graduate (ITG) 2 * Counselor of Real Estate (CRE ) * * Certified International Property Specialist (CIPS) * * Certified Property Manager (CPM ) * * Accredited Land Consultant (ALC) * * Accredited Residential Manager (ARM ) * * Accredited Management Organization (AMO ) * * Residential Accredited Appraiser (RAA) * * No designations held *Less than 1 percent. Note: Data does not show whether brokers or salespeople hold more than one designation. Source: An Executive's Guide to REALTORS : NAR Membership Profile, 1996 Review In order to be profitable, the real estate firm must bring in more income than it takes to pay all expenses. The firm can increase income from agents in two ways. One way is to improve the production of the existing agents, and the other way is hire more producing agents. Most firms implement programs for both methods by providing ongoing training for existing agents, and actively recruiting new and veteran agents. Recruiting, as well as retention, should be an everyday, continuous and ongoing activity. It is the job of the manager, to recruit every day. For any recruiting system to work effectively it must be done consistently and always before the need arises. The purpose of recruiting is to: increase income increase market share 101

102 102 replace agents leaving the company (or business) gain specialists in certain "niches" bring in new talent/ideas meet competition build future security The manager should get answers to questions that will give insight as to the personality, goals, drive, and ethics of the prospective recruit. An employment application should always be filled out and verified to help determine the applicant's honesty, stability, personal habits, achievements, motivation, and financial status. It is important for the agent to ask specific questions, to decide if the company is compatible with the agent's personality and professional needs. Continuous exposure to new ideas, technology and techniques in problem solving, training and mentoring are the most valuable services a company can offer new or experienced agents. An agent may join a company affiliated with a franchise because being identified with a recognized name may be important in establishing credibility. The small office usually attracts agents that are experienced and productive. They enjoy the social and professional closeness of the agents and designated broker. The small office attracts experienced agents, and requires less overhead, so the designated broker can sometimes offer a higher commission split to the agent. In a large office, the large number of agents, management and staff naturally can create excitement, creativity and team spirit. No matter the size of the company you choose, some common factors for success are the reputation of the designated broker and the company, and the quality of service provided. There are more real estate companies that specialize in residential property than any other type of property. Specialization can help a smaller company capture a large market share. There are many places to find new people to bring into your business. Some come from other careers outside the real estate business, some are past buyers or sellers, and others may be ready to make a change from another brokerage. Many companies have an in-house real estate school which attracts a steady flow of students who may later affiliate with the firm, as well as agents who need to take required clock hours. People looking for a career change often have valuable skills because of their prior career background, even though they may not have sales experience. Downsizing has played a part in bringing in corporate executives. These people are often great candidates for a new real estate career because they typically have funds set aside to tide them over while building their new business. Although firms often spend a great deal of time and effort attempting to lure agents from other companies, most good agents will not leave unless there is a serious problem with their current company or designated broker. When a high producing and/or well liked agent leaves a company, it is common for others to follow that agent to the new company. Good recruiting managers keenly are aware of this and take full advantage when the occasion arises. Occasionally, a designated broker may be considering closing his or her business and going back into sales and listings. Experienced designated brokers often are thrilled to return to working with buyers and sellers, making top money, all without the headache of management problems and/or overhead worries. Recruiting always should be done consistently; when you don't "have to, rather when you "have to."

103 Another method is to run "Career Night" ads and hold sessions that include a presentation, tour of the office, refreshments, and lots of attractive informative brochures. Your past and current contact clients and satisfied customers also can be a source of new recruits. If you tend to hire and keep low or minimal producing agents, morale problems increase and it will be more difficult to motivate others to join your company. The more selective the designated broker is in hiring agents, the more honored and motivated agents will be to join the team. Being selective also lessens risk of customer complaints, personality problems, and even litigation. After training, if the agent is not producing your company minimum within a reasonable time frame, the de-hiring system should be considered. Although termination or de-hiring is never easy to do, top managers know that if salespeople aren't pulling their weight, they're increasing your costs and lowering your profit. Retaining good agents is extremely important. It is easier to count on production from experienced agents, than to gamble on the success of new agents. Agents seldom "jump ship" when there is good communication, mutual respect, rewards, recognition, and personal attention between agent and management. It is just as important to "do what you did to get them," as it is to keep them. An often painful but almost always unavoidable occurrence that comes with the role of being the designated broker, is the emotion and sense of loss, betrayal or failure, when an agent leaves. When an agent leaves, the designated broker should try to determine why the agent left. This may be an important factor in making certain that other agents are not influenced to follow. If a good agent leaves, the designated broker should look into the reasons and learn from the loss to prevent other brokers from leaving. Good advice is to focus on all of the positive attributes of your company, not dwell on the past, keep spirits high, and show appreciation for loyalty. 103

104 Introduction It is vital to have a well-trained staff of agents. Whether new or experienced, ongoing training is essential. The real estate business is a rapidly changing industry, and to remain competitive licensees and real estate firms must keep up with changing laws, technology and techniques. The designated broker or branch manager is responsible for the company's production, but he or she should not have to "save" every transaction, or constantly have to "put out fires." With a good training system in place, more time can be spent actively helping agents increase their production and less time in the office overseeing and supervising. A good training system improves company morale by reducing unnecessary and unproductive periods in real estate sales by offering effective sales techniques and methods. Having a group of competent qualified agents also gives the public a higher overall company image. Designated Brokers also are ethically responsible for protecting the public against incompetence when handling their transactions. Article I of Code of Ethics reads: Realtor should "keep himself informed on matters affecting real estate in his community, state and nation so that he may be able to contribute responsibly to public thinking on such matters." Article 2 of Code of Ethics: "In justice to those who place their interest in his care, the Realtor should endeavor always to be informed regarding laws, proposed legislation, governmental regulations, public policies, and current market conditions in order to be in a position to advise his clients properly." Most State laws, including Washington, require licensees to have continuing real estate education. Although laws can require that certain courses be taken, the designated broker should also be aware of the individual agent's skills to make sure he or she makes proper use of continuing education. Purpose of New Agent Training To be proficient in the real estate business, the agent must constantly update him/herself on changing laws, methods of finance, economic trends, and other important issues. Continuous exposure to new ideas, technology and techniques in problem solving, training and mentoring are the most valuable services a company can offer new or experienced agents. 104

105 A stimulating environment can help agents sharpen their skills in this competitive field. Designated Brokers who routinely hire new licensees must provide a good training program. In large offices this training is usually held in-house. Designated Brokers who seldom hire new agents may be able to provide new agent training "off-site" or through a franchise system. Most new agents do not realize what it will take to be successful, much less survive, in the real estate business. The designated broker's training program should enable the new agent to build self-confidence by believing in the value of his or her services and to become an asset to the company. Once the new agent is licensed, he or she must enter into a contract with the designated broker, become introduced to the policies, procedures and organization of the company, and begin a training program. Many designated brokers believe that immediate exposure to a comprehensive training program and skills assessment will have new agents producing in as short a time as possible. Helping the new agent to quickly begin earning an income is a benefit to both broker and the agent. Some designated brokers, particularly those with large or multi-office companies, will have established company training programs. Independents and smaller brokerages tend to provide a more "informal" type of training using mentors and interaction with experienced sales agents. Either way, the training should establish an organized work pattern for agents to follow. Office procedures and routines must be explained and all agents must be made aware of the designated broker's policies. If the new agent's training is not adequate, the agent will likely drop out of real estate before ever knowing if he or she would have made it. The trainer can be the designated broker, branch manager, experienced agent, professional trainer, or teacher. What matters most is that the person in charge of agent training possess the ability and desire to teach and motivate others. To be effective, the trainer should be a good listener as well as a communicator. Methods of Training "New agent" training courses are different than continuing education, and should not be lumped together into the same classes. To do so may annoy the experienced agents and frustrate new people. Keeping continuing education classes separate from new agent training also makes each group feel special and more willing to accept the training. There will always be some classes that are appropriate for all and having them together can enhance team spirit. These classes could be on company policies, forming a mission statement, new laws, or risk reduction. Unless the class is in telephone techniques, it should be held in room separate from the sales office, away from telephones. Ideally it should be quiet, undisturbed area with adequate lighting, comfortable heating, electrical outlets for equipment, and spacious enough to seat everyone comfortably. 105

106 Lecture is the most used method of teaching and training, but it requires careful attentiveness to be effective. Lecture with "direct contact" offers more opportunity for praise, constructive criticism, and personal attention. Nurturing helps build esteem and create a more positive learning environment. Discussions or "brainstorming" encourages involvement by trainer asking open-ended questions. This creates a safe environment without public criticism because there are no right or wrong answers or views. The trainer also may encourage group exercises where agents interact and learn from each other by working together on a challenge or quiz. The "process" of working together is more important than the "content" of the session. Many agents "run" from any class that has "role playing" in its description. However, role-playing is an effective method to model behavior, practice and evaluate progress and results. Also try role switching" to allow the student to see things from a new perspective, and to add excitement and enjoyment. Using a "case study" of a situation also can be effective. The trainer has the class discuss it, work out a solution, and report the results. It is best to have the agents assist in creating a scenario that may actually happen in a real estate transaction. Research shows that students who are involved in planning activities and learning sessions tend to be more highly motivated. Outside or "field" training is also valuable. After being shown the basic techniques, the agent accompanies the branch manager, trainer or experienced agent on an appointment. The agent should be there to observe, rather than to be critiqued on performance. It is not in the best interest of the client to have an inexperienced agent conduct a presentation as "training." After a few appointments, the new agent may be ready to take the lead and/or participate, but at first it is best to allow the new agent to watch. Once the new agent completes training and several "field trips," he or she will be ready to do the entire presentation while the manager or trainer observes. Handling Difficult Questions It is important that all new agents fully benefit from the training program. If a student seems to be disrupting the class, the trainer may be able to alter the disruption by using these techniques. Argumentative Diffuse by breaking in with "thank you for sharing "Anyone else?" Long-winded Talker "Let's go over that at our break." "Anyone else?" "Know It All " 106

107 "That's an interesting view. Now, it's my turn again. Anyone else? " Talkers (while speaker is talking) Go over and stand right next to the talking parties and carry on your speech. Not Paying Attention or Relating to Discussion Change your style of teaching. Motivational "Will you help me? " "I'm proud of you." "I beg your pardon." Probing "What is your opinion?" "What do you think?" "How do you feel about that?" Post-License Procedures To make sure that the affiliation process is complete, the manager may want to use a form like the sample below. This form should be kept in the agent's file and used for all future references. Affiliation Process Due Date Completed Manager Approval/Notes Firm-Agent contract completed/signed Independent contractor status discussed Letter of expectations received Goals discussed Temporary business cards provided Permanent business cards ordered Desk/work area assigned Office key issued Name badge ordered Training schedule received Phone system training Publicity photos provided Name riders Car insurance-rider binder provided Errors and omissions insurance Realtors Application Membership fee Lock boxes and key obtained Realtors Orientation completed Received notice of meetings MLS Application completed/ fee paid MLS Computer orientation 107

108 Policy and Procedure Manual received Paging system Accounting/agent checks/ar's Agent office expenses Filing system Floor time Sales meeting and tours Advertising policies Metro-Scan /reverse directory/title co. Listing file procedure Earnest money deposit receipt procedure Counteroffer procedure State required Disclosure Statements Other Basic Training Topics A real estate broker's role is to bring a ready, willing and able buyer to a ready, willing and able seller and see the transaction through to closing. The term "real estate agent" can mean either the designated broker OR an agent licensed under the designated broker. A real estate agent can represent a seller, a buyer, both buyer and seller, landlord, or tenant. Only a licensed real estate designated broker can be compensated to legally represent buyers and sellers of real estate. Real estate agents can work ONLY as the designated broker's representative, and CANNOT directly represent buyers or sellers. By law, the designated broker must supervise the broker's activities, and assume responsibility for their agent's activities. Benefits to Sellers There are an increasing number of agents that represent ONLY the buyer, but MOST real estate agents represent the seller. Real estate agents can save their clients' time and money. The agent's knowledge of financing, real estate law, contracts, and pricing is necessary for a closing to take place without unnecessary complications. A long sequence of events must occur before the home sells and closes. The agent can give the seller advice on competitive pricing, how to save money in making the "right" repairs and improvements, and how to enhance the property for showing to attract prospective buyers. 108

109 Example Heidi Randolph is being transferred to another state. She lists her existing home with agent Joel McCarthy at Perfect Realty. Through his designated broker, Joel will actively market and advertise to find prospective buyers, show the home to prospects, present all offers, and assist in the negotiation of a sales contract with the buyer. Once the sales contract is accepted, McCarthy will oversee and orchestrate the transaction until it closes. The sale will be recorded and the proceeds will be properly distributed. Perfect Realty will be compensated by a fee called a commission, which is typically a percentage of the sold price that the designated broker will then split with McCarthy. One of the biggest benefits an agent can offer a seller is available data used in preparing an estimate of value. If a property is priced too high, it will NOT attract buyers. Buyers looking for homes will NOT usually make "reasonable" offers on "overpriced" homes. However, if the agent can show the seller what buyers have recently paid for homes similar to theirs, the seller can make a better decision in pricing the home. Benefit to Buyers Real estate agents are a benefit to local buyers and relocating buyers. When a person is transferred to another city far away, the agent can help the buyer "familiarize" themselves with the new city by preparing a list of homes from MLS including information about jobs, taxes, services, shopping, schools, fire protection, economy, etc. The seller usually pays the real estate commission. Since the buyer seldom pays the commission, nearly all buyers use their services. Serious, qualified buyers usually have jobs and other interests so they hire a licensee to find appropriate homes for them. SOME buyers choose NOT to hire an agent, but these buyers are often investors or bargain hunters who wish to save the commission "for themselves" NOT the seller. The licensed real estate firm has a greater inventory than the FSBO (for sale by owner) because of his/her access to the computerized MLS list of all the properties that meet the buyer's wants and needs. The agent can select all available properties in the buyer's price range with the features the buyer is looking for. Compensation To have a successful career in real estate sales, the agent must be prepared to take on the job of representing the client and sticking with it until the job is accomplished. This means that the agent should be committed, both emotionally and financially. 109

110 An agent can earn substantially more than a person in a salaried position can because agents are paid commissions for producing results. This means that if the agent produces a large volume of transactions, the agent will produce a large income. There is also the very real possibility that if the real estate agent does NOT produce, the agent will NOT get paid. Because agents are almost always paid on commission, they cannot immediately rely upon a regular paycheck. To avoid the stress of economical uncertainty, the agent is often in better emotion condition, if he/she has a financial reserve of 3-6 month income or can temporarily rely on a spouse's or other income. Characteristics of Successful Agents Research shows that successful agents are: Honest Ethical Positive Enthusiastic Creative Resilient Loyal Independent and Attentive to details Homebuyers and sellers trust real estate agents with one of the largest investment of their lives. They want to work with trained, confident, full-time professionals that possess ethics as well as knowledge. The agent must earn, build and maintain his or her reputation. Positive Attitude The agent must have a positive attitude and enthusiasm for their company and real estate in general. If the agent appears confident, knowledgeable, and shows a positive attitude, the client will feel more confident that they have chosen the right person. An agent with a positive attitude toward a property or a client may often be chosen over a more knowledgeable but less positive appearing agent. Rejection When prospecting for listings it is thrilling to hear "yes," but sometimes an agent hears "no" dozens of times before hearing one "yes." It is also exhilarating and exciting to successfully close a sale, but it can also be a disappointment to work for weeks putting together a sale, and watch it fall apart through no fault of your own. To live with the highs and lows of approvals and rejections, successful agents learn to gain inner strength by using positive thinking to help them recover from occasional setbacks. 110

111 Taking time to reorganize, reset goals, and continue making future plans can help the agent forget about rejection and look forward to successes. Working with People Working with people is nearly 100% of the real estate sales business. Agents must genuinely like to help people and enjoy working toward solving problems. They also must be willing and able to deal with many different personality types. The buying or selling of a home is a major life experience, and the emotions and pressures involved during a transaction, can bring on outbursts and reactions. Clients sometimes become impatient, depressed or even lose their temper. These emotions require empathy on the part of the agent. Successful agents will mentally "walk around in the client's shoes' to help them identify with the person, and see situations from the client's view. Once the agent can understand how the client feels, they can better respond to the clients needs. During stressful times, agents should be tolerant and patient. They may even have to be a little forgiving, if the client's temper goes a bit out of control. Tact and diplomacy also can be a great help to guide the client to a rational decision. Listening Skills To understand what motivates people, the agent must be an active listener. In order to help a buyer or seller, a successful real estate agent listens carefully, NOT ONLY to what the person says, but just as importantly, to what they do NOT say. A good real estate agent will listen carefully, ask questions, and offer advice to resolve the concerns of the client. Clients and customers respect agents that have the courage to keep trying to find new solutions to problems. The old saying, " They don't CARE how much you KNOW... "they KNOW how much you CARE," still holds true today. Self-Starter Even though the agent MUST be affiliated with a designated broker, real estate agents work for themselves. The agent is expected to continually generate business by developing and working a client base. 111

112 Knocking on doors, calling strangers, friends and family, active "farming," and making continuous contact with your "sphere of influence" can develop an agent's client base. Hard Work and Smart Work Top production agents tend to be very goal-oriented, self-motivated, organized, and are capable of working both hard AND smart. The smart worker will analyze sales techniques and arrange for time to prospect during the most productive hours. They take time to learn to utilize all available tools to perform tasks easier, such as getting more appointments with fewer calls or creating more transactions from fewer appointments. To be effective, the smart worker must often put in the hard work of working long hours when necessary. Successful agents take the amount of time and energy that is necessary to build up a clientele. The Economy Real estate is a career that is directly tied to the economy. The agent has to deal with factors such as inflation, supply and demand, and interest rates. To slow down inflation, the government raises interest rates. But when interest rates are high, the economy slows down; wages decrease as prices increase. This can eliminate many buyers from the market because a higher interest rate means higher mortgage payments. When recessions occur, potential buyers delay major investments including the purchase of real estate. However, inflation actually can increase an agent's production! Inflation also could create a sense of urgency in which buyers rush to buy houses before the prices increase even more, although there are fewer buyers able to afford most of the homes on the market. Education and Problem Solving Agents must also take an active role in ongoing education. Besides State requirements, an agent needs to be current on law, regulations, the economy, environmental issues, and technology. Successful real estate agents are "problem solvers," and in order to anticipate problems, they spend the necessary time and effort to prevent problems from arising. 112

113 In today's highly technical, legally complex world, a typical sales transaction can be full of challenges. To meet those challenges, an agent must be knowledgeable in all areas of real estate and know the inventory of available properties. Personal Life Because agents are independent, they must balance out the amount of time devoted to business with their personal life. The best way is to actually set an appointment to block out time for family and friends, and let clients know that there are some are restrictions on the time you will be available. Most customers' and client's expect the agent to work at their convenience, which means lots of evenings and weekends. The successful agent will enjoy working at any time necessary, but is able to make priorities and plan time for a personal life. An agent who has developed a good client base and has earned a good reputation of giving high quality service, will find that clients are willing to work within the agent's schedule. The sacrifice of providing quality client service by working evenings and weekends can really pays off in a year or two. Prospecting to Develop a Client Base Methods of prospecting for buyers and sellers can include working your "sphere of influence," farming, holding open houses, advertising, calling FSBOs and expired listings, giving out business cards, and personal marketing and promotions. Sphere of Influence Your sphere of influence could include members of a club, co-workers from a past employment, social contacts, or any group of people with whom you have something in common. Agents, who give high quality service, are rewarded with "repeat" and "referral" business that comes from "word of mouth" advertising. Farming All agents should become completely familiarized with their market area, identifying the strong and weak points, locations of schools, shopping centers, recreation facilities, property tax rates, zoning restrictions, and approximate cost of utilities in the area. A great way to get started is to "farm" a specific area. Agents can select an area in which they will specialize and become experts. They can then contact the assessor's office or title insurance companies to request the available data of these properties, such as names, address of owners, taxes, date of assessment, last sale price, year built, etc. 113

114 The agent then contacts these owners on a regular basis, giving them current information that affects the neighborhood such as recent sales, available listings, proposed zoning changes, etc. Paying close attention to the owners, as well as the statistics of a neighborhood, lets owners know that the agent is truly the "neighborhood specialist". FSBOS For Sale by Owners are good sources of prospective listings. They have already decided to sell their property and may decide to hire a professional agent, if it does NOT sell in a certain period of time. Expired Listings Contacting sellers of listings that are expired is another great way to prospect. By updating the C.M.A. or Competitive Market Analysis, and knowing factors that could affect the neighborhood values, you may be able to determine why the property failed to sell. Mass Mailings Ads and "Door Hangers" These are useful tools used to prospect in a passive but effective way. Using personalized promotional materials such as postcards, brochures and newsletters can be an advantage, especially when photos, graphics and other visual aids are used. Cold Calling Cold calling is a method where an agent prospects for buyers and sellers by phone from a list of phone numbers such as a reverse directory or phone book. " Warm calling" is nearly the same as cold calling, but the agent calls friends, family, past clients, or others in their sphere of influence that are likely to work with the agent when they are ready to buy or sell. This keeps a "top of mind awareness" so that they don't forget that you are in the real estate business. Prospecting is vital to the success of the agent. Example: Prospecting Your designated broker suggests that you prospect by contacting your sphere of influence. You begin by pulling out your holiday greeting card list. It has names and addresses of your family, friends and social contacts. These are people that will become your future clients. If your list isn't very long, ask grandparents, or other family members for their holiday card lists. These are people that you care about, and that you know well enough to share cards, so you already have some influence with these people. The list can be expanded by adding members of your club, co-workers from your past employment, business, and social contacts or any group of people with whom you have something in common. This list can be made into a database and used for continuous contact by mail, phone, etc. Sample "New Agent " Training Schedule 114

115 During the first two weeks after obtaining your real estate license, new agents will attend a daily training session. After an introduction to the company, the focus will be on active listening, providing high quality service, and helping clients overcome common concerns as they arise. New agents will later be trained in specialized niche marketing programs offered exclusively by ABC REALTY. This training is progressive, and therefore it is very important that new agents attend each session in the proper order. A schedule of the training topics for the first week and second week training is included in this manual. New agents will need to attend all sessions for both weeks before receiving appointments. Some sessions require homework. New agents may feel free to attend any session as many times as they wish, if they feel they would benefit from a recap of those skills. New agents also will have daily meetings with the manager in the last 2 weeks of training. Each day, new agents will review their progress in completing training assignments as well as activities that are the most productive at this time. By the completion of the training program, new agents should be able properly use their new skills. On Wednesdays at 8:00 AM, new agents will attend our office sales meetings instead of training class. After the office meeting, all agents will carpool to take a tour of new listings. It is very important to tour all new company listings to show our clients that we work as a team, and all agents at ABC REALTY are supportive of one another. Further, to work effectively, new agents must be fully aware of the entire inventory to intelligently handle inquiries from potential buyers. Once new agents have completed training, they also will have the opportunity to begin to take "floor time." Floor time is an opportunity to take incoming calls from potential clients and turn them into sales or listings. These calls are very valuable and all agents are expected to be on time and cover the entire shift. To begin training, new agents will need a briefcase, notepads, pens, a financial calculator, an appointment book or computer diary, 500 file cards with dividers, a 100 foot tape measure or electronic tape, a staple gun, and flashlight. Time Management and Goal Setting Real estate agents are almost always independent contractors. This means that their days are not structured, as an "employee's" day would be. In order to be successful, the new agents also will have to learn how to organize themselves, manage their time and establish priorities. They also must be able to set financial goals and determine the number of contacts needed for success. To be realistic in your goal setting, it is important to remember that because the real estate business is a "people business," we cannot count on every sale to come to a successful closing and not every listing will sell. Sometimes sellers are unrealistic, or a loan may not be approved, or any number of circumstances can change before or during a transaction. 115 Let's say that the numbers used in this exercise take into consideration, the percentage transactions that do not close the percentage of

116 presentations that must be made to obtain a successful listing or sale and listings that never sell. You may need to adjust these numbers depending on your market area and personal performance. For instance, if 20% of your contracts "flub," "fall," or "fail," you will need to calculate the number of sides you actually will need to make sure enough "close" to reach your goal. You would take G divided by 80% (that's 100% minus the 20% that fail to close). 80% of all opened transactions will close 60% of your business will come from listing sides 40% of your business will come from buyer sides 70% of all listings will sell and close One out of three listing presentations will result in a signed listing One out of three prospective buyers will become a purchaser The number of contacts needed to produce listing appointments and buyers are "reasonable estimates" for you to use until you can obtain your accurate numbers. Goal Setting Exercises #1 Desired Income How much do you want to make this year... A) $36,000 What is the average sales price of a home in your area (available at MLS). B) $100,000 What is your average commission rate (%) per side (ask manager)... C) 3% What is the average office commission per side (take B times C). D) $3,000 What is your (%) commission split (in your contract)... E) 50% What is your average "net " commission per side (E times D)....F) $1,500 How many closed sides will you need to reach your goal (A by F). G) 24 If 20 % fail to close, you really need # sides to reach your goal (G 80%= H) H) 30 # 2: Prospects Needed How many listing sides will you need ( 60% of line H)... I) 18 You must take this many listings (I by 70%)... J) 26 You need to make this many listing presentations. ( 3 x J)... K) 78 Number of weeks you will work per year... L) 50 How many listing presentations per week needed (K by L)... M) 1.5 How many buyer sides will you need to have? (40% x line H)... N) 12 Buyers Needed ( 3 x N)... O) 36 Number of Weeks you will work per year... P) 50 How many buyers needed per week (O by P).. Q).7 (round to 1) #3: How many contacts are needed per week? 116

117 Sellers Listing Presentations Needed 78 (line N) Annual Weekly Prospecting Contacts to Produce Contacts Worked Contacts Method Per Method a Presentation Needed Per Year Needed Cold calling 18 x 100 = = 54 Door knocking 12 x 100 = = 24 FSBOs 6 x 5 = =.6 Expired Listings 10 x 15 = = 3 Sphere of Influence 12 x 100 = = 24 Farm Area 20 x 100 = = 40 Total per week Buyers Total Buyers Needed 36 (from line O) Prospecting Buyers to Produce Contacts Worked Contacts Buyers Needed Per Year Ad Calls 15 x 10 = = 3 Open Houses 5 x 10 = = 1 Sphere of Influence 16 x 100 = = 32 Total 36 per week Goal Setting Form Month of 30 Day Plan Goal: To increase production and net company dollar by minimum of % Question: Where are we now? 1. Average monthly year to date company dollar amount 2. Last month's company dollar amount. 3. Was last month higher or lower compared to year to date monthly average?. 4. To what do you attribute this? 117.

118 5. What was the average per-person production last month?. 6. Based on last month s per-person production, how many agents are required to produce $ per month company dollar?. 7. How many licensees do we have as of today? 8. How many additional recruits are necessary to produce $ average company dollar? Goal Setting Form Month of 30 Day Plan Goal: To increase production and net company dollar by minimum of % Question: Where are we now? 1. Average monthly year to date company dollar amount 2. Last month's company dollar amount. 3. Was last month higher or lower compared to year to date monthly average?. 4. To what do you attribute this? What was the average per-person production last month?. 6. Based on last month s per-person production, how many agents are required to produce $ per month company dollar?

119 . 7. How many licensees do we have as of today? 8. How many additional recruits are necessary to produce $ average company dollar? Veteran Agent Training A good training program will develop habits to help people succeed, reduce high turnover, and increase income stability. A designated broker with a staff of well trained, competent agents will have an easier time accurately forecasting sales and projecting company's growth. However, to be effective, education and motivational training must be interesting, ongoing and continual. Motivational and educational topics can be discussed at the weekly sales meeting, but continuing education should also be scheduled separately. The Department of Licensing requires veteran agents to take continuing education courses such as Law, Finance, Appraisal, etc. If the agent is preparing to take the managing broker's exam, he or she also will need to take Brokerage Management, Business Management, and other required courses. Agents also want and need technical courses to use software programs, Internet, and to keep their competitive edge. The best agents are always interest in advanced training on Listing Selling Closing Techniques Effective Time Management Power Prospecting Marketing Investment Analysis Exchanges Commercial Sales & Leasing Positive Motivation Personality Types 119

120 New Construction Modular Home And Manufactured Home Sales Any other educational exposure to the hottest topics today Review It is vital to have a well-trained staff of agents. The real estate business is a rapidly changing industry and to remain competitive, agents and firms must keep up with changing laws, technology and techniques. With a good training system in place, the manager can spend more time actively helping agents increase their production and less time in the office overseeing and supervising. Having a group of competent qualified agents also gives the public a higher overall company image. Designated Brokers also are ethically responsible for protecting the public against incompetence in handling their transactions. To be proficient in the real estate business, the agent must constantly update him/herself on changing laws, methods of finance, economic trends, and other important issues. Designated Brokers who routinely hire new licensees must provide a good training program. Most new agents do not realize what it will take to be successful, much less survive, in the real estate business. The designated broker's training program should enable the new agent to build self-confidence by believing in the value of his or her services and to become an asset to the company. If the new agent's training is not adequate, the agent will likely drop out of real estate before ever knowing if he or she would have made it. To be effective, the trainer should be a good listener as well as communicator. "New agent" training courses are different than continuing education, and should not be lumped together into the same classes. There will always be some classes that are appropriate for all and having them together can enhance team spirit. These classes could be on company policies, forming a mission statement, new laws, or risk reduction. Lecture is the most used method of teaching and training, but it requires careful attentiveness to be effective. Discussions or "brainstorming" encourages involvement by trainer asking open-ended questions. The trainer also may encourage group exercises where agents interact and learn from each other by working together on a challenge or quiz. Role-playing is an effective method to model behavior, practice and evaluate progress and results. Using a "case study" of a situation also can be effective. Research shows that students who are involved in planning activities and learning sessions tend to be more highly motivated. After being shown the basic techniques, the agent can accompany the manager, trainer or experienced agent on an appointment. After a few appointments, the new agent may be ready to take the lead and/or participate. Once the new agent completes training and several "field trips," he or she will be ready to do the entire presentation while the manager or trainer observes. The new agent should be exposed to special systems, programs or advantages the company may have. These include a in-house mortgage or finance company, equity advance programs, guaranteed 120

121 sales plan, home warranty program, special builders or subdivision programs, relocation services, referral systems, or a multitude of other possibilities. New agents must be able to begin "building their business" by establishing a clientele. In order to do this, they must know how to find people with real estate needs. This is referred to as "prospecting." The new agent should be able to recognize referral opportunities and know how to fill out incoming and outgoing referral forms. In order to work with sellers the new agent should understand "active" listening, overcoming concerns, and the value of asking good questions. He or she should have a professional marketing plan and be able to complete a CMA to arrive at an accurate range of value. Creating and using a powerful listing presentation is crucial to show the seller how the agent will promote the properly to the public, other agents in the company, and other company REALTORS. In order to be successful, the new agents also will have to learn how to organize themselves, manage their time, and establish priorities. They also must be able to set financial goals and determine the number of contacts needed for success. A good training program will develop habits to help people succeed, reduce high turnover, and increase income stability. A designated broker with a staff of well trained, competent agents will have an easier time accurately forecasting sales and projecting company's growth. Introduction A licensee considering opening his or her own business today must do things differently and face different challenges than they would have a decade ago. 121

122 The progress in technology alone is a major change, and today's licensee must be prepared to capitalize on the marketplace for the benefit of his or her own business. Real estate licensees come from many different backgrounds, education levels, past careers, and directions. The real estate business is evolving from an established method of doing business that hasn't seen much change since the innovation of MLS, to a faster paced environment, with many different ways to operate a successful brokerage. Successful firms share some important and vital characteristics. Some firms started in great economic times which were a tremendous boost to their eventual success. But others started their real estate businesses in the middle of the worst markets and not only persevered, but succeeded against all odds. Two of the most common traits of successful people are persistence and consistence. A more recent characteristic among the successful is the acceptance and proficiency of modern technology such as laptop computers, business software programs, web sites, , and social networking. Many people go into real estate, not because they love the business, but because they believe they will make lots of money. However, more often than not, those who make the most money are in the real estate business because they genuinely enjoy what they are doing. Starting Up A Brokerage Starting a real estate brokerage can be rewarding, but it may also be very risky. The owner/designated broker takes on a huge responsibility and must have a very high degree of competence in management skills and business expertise to run a company and be profitable. It is also a costly business to start. The most common reason a brokerage can fail is from being under capitalized. To effectively compete in today's information age, typical minimum requirements to set up an office include space, phones and phone system with conference calling and voice mail, computers, copy machine, fax machine, modems, computers, desks, chairs, file cabinets, signs, and access to on-line services. Of course, the real estate business is a "commission" business, which means it may take a considerable amount of time to see a predictable cash flow. The starting designated broker will need at least six months of working capital to cover operating expenses. The expense of starting a brokerage may less uncertain, if the designated broker buys an existing business. The existing business may already have a good established reputation, a position in the marketplace, a successful office location, an efficient office staff, and experienced agents as well as an established cash flow. However, appraising the business' value can be difficult. 122

123 The existing business also could have "problems" such as outdated equipment, debt from deferred expenses or poor reputation. Whether the company is started "brand new" or acquired as an existing business, time and money invested in drafting a good business plan will help you avoid financial ruin. The planning process begins by gathering information about the marketplace and factors that might impact operations. The business plan is the working document to be used by all levels of management to monitor the progress of the company in reaching its financial goals in order to provide the greatest return on the investment. The plan should be timely and up to date. It should look into the foreseeable future, but it is wise not to look too far ahead and become "ahead of your time." Your projections may not be predictable and useful, if your plan is carried too far in to the future. Most businesses require time to "take off" and real estate is certainly no exception. A long-range plan will help the new firm stay on track while the new business is being built and developing. A typical long-range business plan is for 5 years. When drafting a plan, the goals of the company must be determined. Then, the strategies to achieve these goals are decided and developed. However a description of goals and strategies will not result in success without a plan about how certain programs, systems and activities will to be used to implement the strategies. "Contingency" plans also should be included. The business plan cannot cover unforeseen problems, changes or other events. Contingency plans that are incorporated into the business plan can provide alternative goals, strategies, programs, systems, and activities in case the original plans cannot be met. It is good idea to seek advice from accountants, financial planners, successful business people, and other experienced entrepreneurs when developing a business plan. Trends With trends toward company mergers, increased demand for higher commission splits and more services, plus the rising cost of high technology, it is little wonder that fewer managing brokers today are willing to take the risk of opening their own company. Successful agents often can afford to have amenities such as their own assistants, computer systems, high commission splits (or low desk fees), and avoid the liabilities of overhead, budgeting and litigation. In the past, agents looked to their designated broker to provide a desk, equipment, secretarial service, postage, advertising, and everything else necessary to conduct business. 123

124 However, in this increasingly competitive business, agents have become much more independent, often purchasing their own computers, software programs, advertising, promotional materials, and more. Top agents continuously invest in their business and seem more content to let their designated broker assume the legal and financial burdens of management. In-Home Offices Changing technologies may result in fewer licensees working in a traditional office setting and more from cars and homes. If this trend becomes a "norm," the definition of "branch office" as well as "adequate designated broker supervision" also could change. 124 Some states (including Washington) have office requirements designed to assure that the Department of Licensing can reasonably locate the office and records for audits and investigation purposes. Affinity Groups Other trends that could affect designated brokers' profits are computer services allowing consumers to directly access information on real estate listings and commission discounts offered to affinity groups. Some real estate organizations offer "affinity groups" discounts on services to their members to gain a large number of buyers or sellers. Affinity groups are simply memberships of people with a common interest or occupation. A growing number of brokerages are operating on as little as 2 to 6 percent profit margins. To augment their income, many have brought in ancillary services, such as mortgage companies, homeowners insurance, security systems, and remodeling services to increase profit. These services may not only may make each transaction more profitable, they can provide a "one stop shopping" benefit to the consumer. Washington's Department of Licensing takes the position that designated brokers are responsible for any fee sharing arrangement with another licensed referring designated broker. However, in some jurisdictions referring brokers may share commissions with unlicensed persons or entities for referring principals. In Washington, secondary arrangements such as these are beyond the scope of our license laws. Buyer Agency Buyer agency as a specialty, is also a growing trend, giving buyers the representation they want, while the seller typically pays the commission, but without heavy advertising costs involved in promoting the seller's listed properties. Many of these offices do not represent sellers at all, referring the sellers elsewhere. Others sometimes act as consensual dual agencies.

125 Reasons for Decreasing Profits The biggest reason for the decline in real estate firm's profits is due to the demand and stronger competition for higher commission splits with sales associates. There is also more competition for listings and sales between both companies and agents and referral companies. Many large employers and "affinity groups" (which are non-licensed entities), also are vying for large portions (as referral fees) where the firm must pay the group a fee because the client was a part of the group. An affinity group does not go out and create more business for the firm. In fact, these groups have found a way to take a portion of the licensee's income by profiting each time a "member" buys or sells real estate, seemingly no matter which company the member goes through. Many of the fees are payable "after the fact" that the client bought or sold property. Although some of these affiliations may be beneficial, it is an area that firms are looking into to determine their contribution and potential legality. Staying Profitable Even though there are new trends and directions some things never change. The best way to be profitable is to give high quality service and develop "clients for life." Using technology to keep, sort and use information about your clients, their interests and preferences is the key to providing such good service that they will always call on you. Companies are spending more to automate their offices with computers, printers, scanners, software, and training consultants, but they're spending less on occupancy costs. The trend is toward either downsizing their facility or providing less square footage per salesperson. To increase profit, the owner must decrease expenses. Every expense must be categorized as either a "cost" or a "value." If the expense is really a "cost", it should be decreased to become a value or eliminated. On the other hand, if the expense is a really a "value," it should be kept and utilized to the fullest. This principle is "simple," but it is not "easy." Designated Brokers trying to reduce overhead by cutting back on the size of their office space, are often re-thinking the idea of having a large building and are encouraging agents to work from home. Agents use the brokerage office only for conferences or sales meetings. Office Space The best agents spend most of their time out of the office. It may be a good idea to minimize your office space requirement, especially if you can lease or buy additional space later. Equipment 125

126 A good way to save money is to wait to upgrade computer hardware and software until absolutely necessary. It is expensive and constantly changing. If you are considering a software purchase, most companies will provide you with a day free trial to install and evaluate before purchasing. Also, ask if any new software or hardware comes with installation, service and/or training. It is very costly to train agents and staff to use new equipment. Check on refurbished phone systems before buying new. They are expensive when new, but sell for only pennies on the dollar when used. Look for companies that have recently closed. They may have spent too much on equipment, which could be a good find for you. Even though overall spending has increased, advanced technology actually has decreased in cost so that now an individual can afford a personal computer, software, and modem to access MLS from a home office versus having to go to the firm's office to perform. The owner also may consider purchasing used refurbished equipment, in addition to new equipment, to help a larger number of licensees to be as productive as possible. Another arrangement might be to allow agents to "earn " the home use of refurbished computers by placing a quota of sales or closings. This also could have the benefit of freeing up office space and phone lines while giving added incentive for higher production. Support Team Although it may seem like an added expense, having a great support staff is a value that allows your agents to spend all of their time making more sales, closing more transactions, securing more listings, and lessening the risk of litigation. You must be careful to interview each person thoroughly and bring together only those people who have strength and excellence in their area. This group must work as a team and be familiar with all areas of real estate transactions and have superior customer service attitudes. Most agents are willing to defray the cost of a good support staff. Advertising It is wise to keep track of every call that comes in on every ad. This is easy to do. Have your receptionist keep a tally sheet or notebook by the phone at all times. The receptionist must ask each caller (if they have not already given the information) "which ad are you calling on?" If you place a code number or name on each ad, this will simplify the process. However, if the receptionist even asks where they saw the ad, it will help to see where the largest numbers of calls are coming from. It also will let you see where the least calls are coming from. You will use this list to prioritize where you place your advertising to produce the highest response. 126

127 Transaction Fees Consider charging a transaction fee for each closed sale. In return for giving agents some additional benefits such as special follow up, thank you cards sent out in their name, or other services that will benefit them, the company and the client. Most agents are willing to pay a transaction fee, if they can see a benefit. Insurance Insurance costs vary widely, so it is very important to do your homework before buying a policy. E&O coverage, general business liability, and other types of insurance also vary in coverage, deductibles and payments, so be sure to read the policy before buying. Make certain that you have enough coverage for computer equipment. Many policies have standard amounts of coverage that would not come close to covering a loss of the typical real estate company's computer and data equipment. E & O insurance can be paid by the month, year or by the transaction. Those starting out may find that the "per transaction" fee may save a lot of operating capital the first couple years. Bonus Plans Some firms are offering bonuses to managers based on the company's monthly, quarterly or annual profitability. The manager may have a greater incentive to increase the bottom line, if a portion of it came back as a bonus or reward. Some businesses are improving performance of staff members by providing a monthly "bonus." An example would be that an employee is hired at $10.00 per hour. However, if at the end of each month, the employee has missed no days, has not been late or left early, a bonus of $1.50 more per hour would be added. Or, if the employee provided at least one money saving or money-making idea that was used by the company, the bonus could be $1.00 per hour more. 127 Develop a hiring practices checklist Come up with a job description review spelling out all necessary and desired attributes as well as providing a complete job description and method of payment (salary, commission, etc.) Advertise for applicants in appropriate venues (local/regional newspapers, online job banks, job fairs, etc.) Set a deadline or decide whether the process will remain open until the position is filled Attempt to promote diversity in your applicant pool Review applications received Selection of top candidates Perform background checks as necessary Invite candidates for interviews Schedule interviews Perform interviews Review interview results Notify selected candidate

128 Notify candidates not selected Develop a hiring practices checklist Come up with a job description review spelling out all necessary and desired attributes as well as providing a complete job description and method of payment (salary, commission, etc.) Advertise for applicants in appropriate venues (local/regional newspapers, online job banks, job fairs, etc.) Set a deadline or decide whether the process will remain open until the position is filled Attempt to promote diversity in your applicant pool Review applications received Selection of top candidates Perform background checks as necessary Invite candidates for interviews Schedule interviews Perform interviews Review interview results Notify selected candidate Notify candidates not selected Appropriate/Prohibited Interview Questions Appropriate interview topics for discussion may include the following: Previous job experience and performance Expectations for this job (you may wish to touch upon earnings here although you may not probe about a candidate's financial situation, you may explain that it can take 6 months or more for a new licensee to close that first sale, so it would be advisable for candidates to have some sort of financial reserves to tide them over) Decision-making and problem-solving skills Communication and people skills Motivation and goal-orientation Comfort level with the technology used by your office Ability/willingness to learn new things Interview questions that may be asked include: Why did you choose a career in real estate? What expectations do you have of a career in the real estate industry? How do you typically handle yourself in a fast-paced environment? What are your strengths and what are your weaknesses? 128

129 How do you establish priorities in the face of multiple tasks needing to be completed? How do you describe your organizational abilities? What are your long-term professional goals? Give an example of a situation that tested your problem-solving skills. What did you do to address the problem? What do you feel makes for effective communication? Do you prefer working on your own or as part of a team? Some interview questions, are, by their very nature, prohibited as they may be seen as promoting illegal discrimination. Such questions include: Do you have any disabilities and/or major health problems? The Americans with Disabilities Act forbids discrimination against any job candidate on the grounds of disability unless that disability is directly related to the job (i.e. a blind person being unable to operate a motor vehicle). Questions regarding a candidate's physical or mental health are likewise against the law. Are you married? Do you plan on having children? These questions are forbidden as the Equal Employment Opportunity Commission (EEOC) has ruled that they may be prejudicial against women candidates. What is your ethnic background? Although diversity in the applicant pool is desirable, you may not come out and ask this information of a candidate. Such information is a purely voluntary disclosure and may not be solicited. If you are specifically interested in a candidate with the ability to speak more than one language, that should be set forth in the job description. Language ability may be addressed in an interview if relevant to the position, but the candidate's ethnicity itself is irrelevant to job performance. What is your age/date of birth? When do you expect to retire? The Age Discrimination in Employment Act (ADEA) prohibits discrimination on the basis of age with respect to individuals who 40 years of age or older, and asking such a question may be seen as a deterrent to older applicants. What is your religious affiliation? Discrimination on grounds of religion or creed is prohibited by Title VII. Identify Required Employee Records Records required by the Washington State Department of Labor and Industries include: Worker's name Worker's address Worker's occupation (job title) Hours worked on a daily and weekly basis Rate or rates of pay Total wages earned, deductions, and net pay for the pay period Businesses must keep these records for three years and, upon request by workers, make copies of their records available to them within a reasonable period of time. 129

130 Your Agents Number of Active Agents on Staff Ave Number of Active Sales Associates lost in last 3 years Do you have an established recruiting brochure/package? Do you have retention benefits/programs/incentives? Do you have established commission schedules (graduated 100%, desk fees, bonuses, etc.) Is your Policies & Procedures manual up to date and clear? Do you have agent awards? Recognition? Do you have agent power groups, such as "presidents club," team activities, committees? Do you have structured, interesting informative sales meetings? Do you have a goal setting plan or schedule? Do you have a system to hold your agents accountable for achievements/goals/etc.? Your Training System Do you have in-house training? Do you use regional/franchise or other training? Explain. Who performs most training? How often is training done? What are the specific expectations of the trainee? Are the expectations in writing? How is accountability handled and tracked? Is manager or trainer available as needed? Does manager/trainer provide field training? Is there a system for goal setting and follow up of progress? 130

131 Your Recruiting Plan Do you hold Career Nights/Days? Do you use direct mail? Do you advertise? How? Do you keep an ongoing accurate recruiting notebook? Do you have an ongoing up to date "hit list" of possible recruits? Do you follow up? Weekly or "Weakly"? How many prospects do you interview per week? Do you have a recruiting newsletter? Does your manager actively recruit and keep the broker informed of all progress? Is your manager a "proactive" recruiter? Do you have a pre-license school? Is your recruiting package prepared and ready to give out? Describe your interview process. Review The real estate business is evolving to a faster paced, more competitive, and high tech career opportunity. Two of the most common traits of successful people are persistence and consistence. A more recent characteristic among the successful is the acceptance and proficiency of modern technology such as laptop computers, business software programs, web sites, and . More often than not, those who make the most money are in the real estate business because they genuinely enjoy what they are doing. 131

132 Starting a real estate brokerage can be rewarding, but it also may be very risky. The owner/designated broker takes on a huge responsibility and must have a very high degree of competence in management skills and business expertise to run a company and be profitable. The most common reason a brokerage can fail is from being under capitalized. The starting designated broker will need at least six months of working capital to cover operating expenses. The expense of starting a brokerage may be less uncertain, if the broker buys an existing business. The existing business may already have a good established reputation, a position in the marketplace a successful office location, an efficient office staff, experienced agents as well as an established cash flow. The existing business could also have "problems" such outdated equipment, debt from deferred expenses, or poor reputation. Whether the company is started "brand new," or acquired as an existing business, time and money invested in drafting a good business plan will help you avoid financial ruin. Planning begins by gathering information about the marketplace and factors that might impact operations. The business plan is the working document to be used by all levels of management to monitor the progress of the company in reaching its financial goals to provide the greatest return on the investment. A long-range plan will help the new designated broker/owner stay on track while the new business is being built and developing. A typical long-range business plan is for 5 years. When drafting a plan, the goals of the company must be determined. Then, the strategies to achieve these goals are decided and developed. However, a description of goals and strategies will not result in success without a plan of how certain programs, systems and activities will to be used to implement the strategies. Contingency plans that are incorporated into the business plan can provide alternative goals, strategies, programs, systems and activities in case the original plans cannot be met. In the past, agents looked to their firm to provide a desk, equipment, secretarial service, postage, advertising, and everything else necessary to conduct business. However, in this increasingly competitive business, agents have become much more independent, often purchasing their own computers, software programs, advertising, promotional materials, and more. Top agents continuously invest in their business and seem more content to let their designated broker assume the legal and financial burdens of management. Other trends that could affect brokers' profits are computer services allowing consumers to directly access information on real estate listings and commission discounts offered to affinity groups. A growing number of brokerages are operating on as little as 2 to 6 percent profit margins. To augment their income, many have brought in ancillary services, such as mortgage companies, homeowners insurance, security systems, and remodeling to increase profit. These services may not only may make each transaction more profitable, they can provide a "one stop shopping" benefit to the consumer. Buyer agency as a specialty, is also a growing trend giving buyers the representation they want, while the seller typically pays the commission, but without heavy advertising costs involved in promoting the seller's listed properties. The biggest reason for the decline in real estate firm's profits is due to the demand and stronger competition for higher commission splits with sales associates. There is also more competition for listings and sales between both companies and agents and referral companies. The best way to be profitable is to give high quality service and develop "clients for life." 132

133 Companies are spending more to automate their offices with computers, printers, scanners, software, and training consultants, but they're spending less on occupancy costs. The trend is toward either downsizing their facility or providing less square footage per salesperson. To increase profit, the owner must decrease expenses. Every expense must be categorized as either a "cost" or a "value". The best agents spend most of their time out of the office. It may be a good idea to minimize your office space requirement, especially if you can lease or buy additional space later. A good way to save money is to wait to upgrade computer hardware and software until absolutely necessary. Ask if any new software or hardware comes with installation, service and/or training. It is very costly to train agents and staff to use new equipment. Check on refurbished phone systems before buying new. Even though overall spending has increased, advanced technology has actually decreased in cost so that now an individual can afford a personal computer versus having to go to the firm's office to perform. The owner also may consider purchasing used, refurbished equipment, in addition to new equipment, to help a larger number of licensees to be as productive as possible. Although it may seem like an added expense, having a great support staff is a value that allows your agents to be spending all of their time making more sales, closing more transactions, securing more listings, and lessening risk of litigation. In order to be profitable, the designated broker must be aware of all income and expenses. Each week or month, the manager should be able to provide the designated broker with an update of expenses, income, sales activity, recruiting activity, and all progress and projections,. The role of the manager is to recruit, retain, train, track, supervise, and help agents produce income, increase profit and report to the designated broker. 133

134 Introduction The top agent does not necessarily make the best real estate manager. In fact, they are almost always two very different personality types. The "very experienced, top-producing agent" may feel that he or she knows much, much more than the "five-year, average-production, former-agent manager;" but in reality, the manager is probably better at putting out fires, recruiting new agents, arbitrating petty arguments, taking care of an office full of very independent contractors, and all the other "fun" things managers do. Great agents usually want and need to be liked by everyone. A good manager knows that making everyone like him or her, all of the time, is not only unlikely, but also a sign of poor office politics. The manager must be fair, play no favorites, and make hard decisions concerning people he or she must work with every day, AND carry out the policies and procedures of the designated broker/owner. Even though the manager need not (probably should not) be a top producer, he or she must be experienced and competent as real estate agent and have the respect of the agents. If the manager is not experienced, educated and competent, he or she would not be fit to direct, advise, train, guide, and support the agents. The most effective form of gaining cooperation is by having the leader work with the agents and provide a good example. Leadership also involves the development and implementation of good company policies. Establishing policies and procedures that outline the expectations of the company can help agents and staff members to work with less supervision and more harmony. This also gives the manager more time for mentoring and giving individual attention to help his or her agents succeed. Credibility If your agents do not believe that you have the background or experience to lead them, they will not be interested in what you have to say. Successful managers are committed to their profession and the success of their agents. 134

135 Without experience in the real estate business, a manager could still collect facts and provide information, but, without knowledge of the business and wisdom from practical experience, information alone can be nearly worthless. Like credibility, leadership is important to gain the confidence of the agents. The successful manager is able to lead others by "recruiting" them to their path of thinking. Agents are a group of people with their own individual problems, challenges, backgrounds, and motives. Your commitment to excellence, caring, building strong rapport, and finding common threads with your agents is not only rewarding and bonding, but will keep your influence strong with your agents. To be effective, the manager should have highly developed communication skills and know how to effectively use body language, voice inflection, and eye contact to show not only an active interest in the agents, but self-confidence as well. Of course, leadership also involves enthusiasm for the real estate profession. Even if you had a room full of eager new recruits, excited about a new career, it would be difficult for them to remain enthused, if the leader of the company was not. Energy, excitement, and enthusiasm are contagious. As manager, you can bring "life" to real estate for your agents by having them "mentally" living your experiences as you share them at sales meetings and goal setting sessions. Being descriptive and "visual," using examples and names (even using your own agent's names in examples) can be effective and memorable. Leaders have a natural instinct to help people by giving their best advice, searching for answers inspiring, and truly caring about their agents. They want to help others succeed. Management Types Managers and agents are made up of many different personality types. Although there is no "wrong" personality type, there are certain advantages and disadvantages in each of the following management types. Everyone's Friend - The Amiable Manager This manager was quite often a successful agent, who wants to win approval as a manager by trying to please everyone. He or she usually is very trusting and tends to look the other way instead of reprimanding, criticizing or disciplining. The "Amiable" does not like to confront anyone and often will not do so unless (or until) the matter is very serious or too late. Although the manager is friendly, he or she may not be respected as a leader. Rules tend to be overlooked, paperwork can be careless, and the company may lack structure. This manager also may be displaying the "Amiable" tendencies because he or she is inexperienced, untrained or insecure. This type may improve and become a stronger manager over a period of time with proper training. If this manager does make changes to become a stronger and better leader, he or she should do so in an organized manner. 135

136 The worst thing this type can do is to let things go until the frustration from lack of control causes the manager to make abrupt and extreme changes. To correct the lack of structure and regard for rules, the manager may suddenly become strict, rigid and resentful. This change can bring confusion to the agents and cause them to leave the company. "The Boss" - The Tough Manager This manager lets you know that he or she "owns the place," he or she "is the boss" and you will "do what I say." Instead of good communication, there is usually a "power trip." "The Boss" type is usually an ineffective leader, often insecure, and has a lack of confidence, but tries to makes up for it by being bossy, overbearing and self-important. This manager cannot get the cooperation and respect of the staff, and because he or she uses no tact in handling people, resentment builds and grows. This situation causes poor morale, low retention, and difficulty in recruiting. Unless this manager makes dramatic changes, the company would have a dismal chance of survival. "Our Leader" - The Respected, Effective Manager This type of manager is confident, motivating, enthusiastic, team spirited, and caring. This is a "people-person" with great communication skills. "Our leader" type is tolerant, but not careless about rules, paperwork, structure, or policies. This manager is respectful and appreciative of everyone's contribution to the company. Rather than "driving" people, he or she "guides" people to make the right choices. "Our leader" creates an environment of high morale and maximum productivity and doesn't boast or brag that "I'm the boss." This leader will instead say, "we are a team." Building Image and Reputation Real estate involves the selling, leasing and listing of property, so the designated broker and agent must be capable, knowledgeable and professional. However, especially in residential real estate, the client often has strong emotional bonds to the property being listed, sold or leased. This client also is concerned that the designated broker and agent care about him or her, and the fact that a home is not only usually the client's largest single investment, but a sentimental and emotional investment as well. Building and keeping a good reputation is not easy. It requires effort, dedication and commitment. According to a Gallop Poll in 1993, real estate agents finished 21 st out of 25 in the ranking for honesty and ethics, but were ranked ahead of car dealers, congressmen and stockbrokers. Real estate people are making headway, but there is lots of room for improving the overall public perception of our industry. 136

137 Once a good reputation is built, the loss of that reputation will impact the company's performance and productivity. Everyone from owners, to supervisors to managers, agents and staff hold responsibility for their companies' reputation. It is very important that the company work together as a team. It is a fact, that if one agent in a large office of, let's say 50 agents, and gives poor service, the client will speak badly of the entire company, causing potential harm to agents who did not give poor service. Example Paul works at Dynamic Realty with 50 other agents. He lists a home for Mrs. Lane. He is late for the first appointment and is not well prepared. Rather than taking the time to do a thorough CMA, he asks Mrs. Lane what she wants for the house. She tells him that she heard houses like hers were "going for" about $80,000. He lists the house at $82,500 and promises to have a sign put in the yard in two days, place ads in the home magazine, and hold an open house on Sunday. Paul forgets to order the sign for five days. He also forgot to take a photo, so his ad was not ready for another week. He showed up for his open house on Sunday, but he was late. Mrs. Lane was concerned that there had been no offers and only two showings after 30 days. Mrs. Lane goes to the supermarket and while in line, her friend, Mrs. Price, asks Mrs. Lane how the sale of her house is going. "Terrible," says Mrs. Lane." Those Dynamic Realty agents are lazy and they aren't doing a thing!" Even though it was not the "Dynamic Realty agents" that gave poor service, because of Paul's poor performance, he was harming his company's, and his co-worker's, reputation. Maybe a good way to judge a "reputation" is by comparing how closely the company's identity, image and character compare to one another. The company's identity is what the company says it stands for, or "holds itself out" to be, whether or not accurate. Example Company "A" - We are honest and trustworthy. Company "B" - We are honest and trustworthy. The company's image is how the public sees what it stands for or what it does, whether or not accurate. Example We saw in the news that Company "A" gave a large donation to the poor. We see Company "A" as an honest and trustworthy company. We saw in the news that Company "B" is being sued for $500,000. We see Company "B" as a dishonest company. The company's character is what the company actually stands for and what it does. Example 137

138 Company "A" needed a tax write off and gave a large donation of excess inventory to the poor. It was in the news. Company "A" also has an in-house daycare for its employees and gives everyone their birthday off as a paid holiday, This is not in the news. Company "A"s character has little to do with the donation. Company "B" is being unjustly sued by a disgruntled employee who is angry for being caught stealing and was terminated. It was in the news. Company "B" also gives 15% of its profit each year to the homeless. This is not in the news. Company "B"s character has little to do with the lawsuit. The client may judge a company's reputation on "capability," "knowledge," or "trust," whereas an agent may judge the same company's reputation on "reliability" and "stability." A manager may judge the reputation on "ethics" and "profitability," and an employee may judge reputation on "honesty" and "fairness." Each individual has his or her own perception of what a company's reputation should be, but whatever the perception, once lost, a good reputation is difficult to regain. Companies are wise to research what is important to their clients, agents, management, and staff and promote ideals that meet their criteria. The manager can inspire ethical behavior by referring to a written code of ethics, personally abiding by those ethics and making it clear that any unethical behavior will never be tolerated. Discuss methods of building accountability. When you build accountability within an organization, you make each team member feel as if they are a part of the big picture and as though their efforts count. Some of the methods you can use for building accountability with your affiliates include: Establishing your organization's top objectives. Pick three very important goals you would like to achieve as an organization. It is vital that these objectives be clear, concise, measurable and obtainable. Assign objectives to each team member. Distribute responsibility so that your organization as a whole can succeed - success is based not just on individual achievement but on team members supporting each other so that the sum of its parts is greater than the whole. Ask all team members what they need in order to achieve these objectives. In order to help team members win, leaders need to remove any roadblocks that may be standing in the way. One way to do this is to have everyone identify a maximum of three things they need in order for them to accomplish each of their objectives, and to write these things down. Agree on what you as leader will do to help. Meet individually with each of your team members to go over their lists of roadblocks and agree on what they needed to achieve their objectives and on who will be responsible for making these things happen. Reward results. When your team members achieve their objectives, make sure that they are visibly and tangibly rewarded for doing so. Make sure that they are also rewarded for helping others to achieve their objectives. 138

139 High Performance Company Environment A high performance company environment is one which features the following characteristics: Participative Leadership The leadership role is clearly defined, yet is one that can be shared among team members. All team members are allowed to make choices that impact the organization and/or their own role within it. Team members have a sense of corporate identity and shared values. Shared Purpose and Vision Team members feel as if they are working towards a common purpose. The team vision is clear, and all team-members are motivated towards achieving this. Morale is high as organizational and team goals align with personal ones. There is a clear understanding of everyone's role in the organization, and the atmosphere is oriented towards problem solving rather than blaming. Shared Responsibility Rewards are linked to team performance, and individual expertise is recognized and appreciated for what it can contribute towards team performance. All members of a team are held responsible for its success and share in the rewards. Task Oriented Tasks are challenging, yet not impossible. Teams and individuals are held accountable for their assigned tasks, yet care is given to assigning equal workloads to all. The focus is on quality, and task objectives and milestones are clear and achievable. Innovative Creativity is valued. There is a great deal or personal respect, and the atmosphere can be described as both empowered and empowering. Problem Solving Team members and managers are upfront and direct about problems, and yet the issues themselves are addressed, not the people involved. The decision-making and conflict-managing processes are clear, and there is a great deal of trust within the organization. Everyone feels freedom to express ideas and share opinions when it comes to problem solving. Communicative Communication is open and ongoing at all levels within the organization, and the channels of communication are clear. Organization members all share a common language and terminology. External and internal communications are managed in a timely fashion. Meetings are structured and purposeful meetings. 139

140 Responsive The organization is flexible, forward-looking, and customer-focused. Team members are supportive and open to partnering with other teams. The work environment allows for a degree of risk-taking and is forgiving of mistakes. Opposing viewpoints are tolerated. Group learning is promoted, and groups are expected to be self-monitoring and self-correcting. Groups evaluate their own performance. Effective Communication Skills To be an effective communicator, you must first and foremost establish some type of rapport with your listener. You need to make sure that what you are saying is something that can easily be understood, and is phrased in such a manner as not to cause offense or promote negativity. You need to be sincere and honest, and you need a good track record of backing up what you say. And you also need to keep in mind that communication is a two-way street. You talk, yes, but you also listen, and you hear and take into account what others have to say. In order to communicate effectively, you should pay careful attention to the following areas: Watch your language. Make sure you use clear, positive, sincere language and promote shared understanding Don't make empty promises - If you say you'll do something, follow this up with action, or if you cannot accomplish something, an explanation for why it can't be done. Acknowledge uncertainty. Talk about the problems that your organization must work through. You don't want to dwell on the negative, true, but you do need to acknowledge that everything won't always be perfect. Refusing to deal with problems can make small ones grow huge. Be an active listener. Concentrate on the message the speaker is trying to get across - do not let yourself get distracted as this is not only rude but counterproductive. Keep an open mind to other peoples' ideas. Let the speaker know you understood what was said by restating key points: "Let me make sure I understand you correctly. You're telling me that...?" Manage conflict. Set ground rules prohibiting personal attacks and blame so everyone has a chance to speak without fear of being shot down. Make sure to use haven for dialogue. Use nonjudgmental, non-inflammatory language like "It seems to me". Keep the dialog focused on common goals and areas of agreement. Don't try to force a resolution, though - just let everyone agree to disagree if it comes to that. Respond by thinking instead of reacting emotionally. Remember to keep calm - sometimes certain issues will get to you emotionally, but you need to take the time to think them through instead of going with your first instinct in order to respond in a professional manner. Provide specific feedback. Don't just make general statements like "that just didn't work," instead provide details as to why not and possible suggestions for what might work better. Make sure you give positive feedback, too. 140

141 Connect face-to-face. Don't limit your interaction to telephone, , faxes or memos, face time is important too in order to establish rapport. Sales Meetings and Agendas Sales meetings should be highly productive, informative and well worth attending. In order to make these meetings interesting to your agents, ask for their ideas and include discussions of topics that they request. Agents often want and need to know more about specific types of loans, environmental issues, zoning and planning, and other factors that affect their income and ability to provide good service. Most agents also enjoy and benefit from hearing from other top-producing agents who are willing to share their marketing, technical and negotiating tips. It is also an opportunity to take advantage of the exchange of information on new listings, price changes and buyer's needs. It is likely that an agent with a qualified buyer will find lots of help from active listing agents at the sales meeting. An agenda should outline the topics to be covered. These should be passed out at the beginning of the meeting and if an agent misses the meeting, a copy can be placed in his or her mail slot. The agendas should be dated and kept on file in computer, file or binder for future reference, training or updating policies. To keep your meetings exciting and valuable, use plenty of visual and audio stimulation. Even playing some upbeat music as everyone enters the meeting room can lift spirits and set the tone. Overheads, slide show presentations and videos can also be used as an enjoyable way to teach new ideas. The more group interaction you have, the more stimulating the meeting will be. Encourage your agents to take part in "brainstorming sessions" or group discussions. Ask them to role-play, give a demonstration, or share a "real life" example. Agents work for their clients, and have to schedule their days accordingly. To make the meetings for your agent's schedule, the meetings should always begin and end on time. It is not up to the agent to have to reschedule an appointment because the sales meeting started or ran late. Showing appreciation for new agents as well as accomplishments of your veteran agents is always welcome. Ask how these accomplishments came to be. What was their "secret"? Discuss what you and other agents can do to help agents with any difficulties they may be having Who says your sales meeting has to be at the office? Try holding your meeting at different locations once a month. When the weather is nice, it could be held outside in a park, or inside at a donut or coffee shop. The best time to begin writing your next week's agenda is right after your meeting. Anything that comes up in this week's time should be noted and considered for your next meeting. Note any changes in the market, interest rates, and technology and of course, ask your agents for input and suggestions. 141

142 SAMPLE AGENDA for Thursday, March 16 th GOOD MORNING! Welcome New Agents! Barbara Smith, Jim Brown, Led Zapplin, Judy Sky, and Liza Minnoltti. We are glad you're here! CONGRATS TO THE FOLLOWING ASSOCIATES: TOP LISTER - Sue Montgomery TOP SALES - Dave Thomas TOP CLOSINGS - Linda Gold THIS WEEKS' GOOD NEWS! Our sales are up 15% over last quarter, meaning an increase of market share of 25%. Our per-person productivity is on the rise and it looks like we have brought on a new home builder for our north subdivision. Interest rates are down and there was a great new "first time home buyers" loan just announced yesterday. Kelly Green is here today to show you how it works. Food Drive Coming Up: Need volunteers. The sign up sheet will be going around this A.M. Please help. Thanks to all veteran agents for assisting at the Career Night last Saturday - It was a success - WE APPRECIATE YOU! This weeks NEW LISTINGS 444 Post 124 Road RD th Ave 808 Open Hwy Duplex Lane Country Rd A tour of these properties will take place this morning after the meeting. Price/Term Changes Buyer Needs New Ideas SUCCESSES Agent input and appreciation Education update Personal Notes: (insert positive notes and lots of fun or funny things that happen at work, at home the kids,,,, friendly & cute...etc.) Developing a Mission Statement Creating a mission statement that fits your company's ideals is important. If it fits, it will be used as an everyday guide in conducting your business. It has become a popular part of the real estate business culture to have a defined mission statement to help executives and employees reach company goals. The mission statement should be a description of who you and your company are, what your company does, what your company represents and why your company believes in these proclamations. To be effective all employees, agents and other members of the company should be asked for their opinions, ideas and input for the creation and development of your company mission statement. Your 142

143 company will work better as a team when everyone feels they had a part in the making of the statement. The mission statements should be short enough to commit to memory. A very long mission statement may seem to try to "cover everything," which is not the idea. The mission should contain a few of the major priorities and main ideals of the organization. The mission statement should be a balance of practical and emotional ideals. To be taken seriously, the mission statement should be kept direct and simple, truthful, powerful, and realistic. Read other mission statements to avoid looking like the others. Go for the unique qualities of your company, but try not to look like an advertisement by boasting about how wonderful or great your company is. Be sure your mission statement accurately portrays your company as it is. Do not use the statement to inflate or puff its virtues. Your mission statement is a summary of your company and its people. You must believe in your mission statement, or no one else will. Let the public know that your company considers its customers' needs for increasing value and quality a top priority. Keep your mission statement updated and timely. "If you don't use it - you lose it"! Make sure everyone in your company has a copy and uses the mission statement in their presentations, sales meetings, and recruiting materials. Developing Company Policies Most people feel more secure in a work environment where the expectations of their performance and behavior are clear. The purpose of a policy and procedure manual is to avoid misunderstandings, prevent problems, and establish methods of solving problems and/or disputes, before they happen. Your company policy and procedure manual also can be a powerful recruiting and retention tool when used in interviewing, hiring, and retaining agents. By showing a prospective agent your policies, he or she could get a good idea of how the company functions and what is expected of everyone. Once the agent has joined the company, the manual can provide good basic training of day-to-day operations and responsibilities. Having and keeping an updated policy manual helps the company manage more efficiently and consistently by setting standards to maintain good relationships between agents, staff and management. It is important that the manual is kept up to date. Agents should be encouraged to provide helpful input, ideas and changes. The weekly sales meeting is a great place to ask agents to work together on ideas for improving, revising, updating, or adding to the policy. 143

144 This is a book that is meant to be changed. As circumstances, laws and your company change, so will your policies. However, avoid adding in any policy that is vague or that you really don't intend to follow. It is also very important that all policies be "impartial" and affect all agents. All revisions should have the revision date on the page. The manual is not intended to be a contract, "legal" document, or all encompassing rulebook. This manual will not cover all situations and there will always be "exceptions." To be effective, it should be clearly written in "Plain English" and include guidance for daily functions such as paperwork, ads, floor time, sales meetings, lock box keys, forms, etc. Your policy manual is your established "standard operating procedure." The policies are not rules "cast in stone," but with a good set of standards, the manager can narrow most dispute resolutions to the "exceptions." The manual should have remedies for resolving disputes and handling exceptions to the policies, but if too many exceptions occur, the standard should probably be revised. The goal of the policy manual is to cover "most" of the people, "most" of the time. Sample Policy The following is a generic sample of a fictitious real estate company. You may use it as a guide. However, it is important to remember that because owners and designated brokers have different views, ideas, motivations, procedures, and policies, each owner or designated broker should develop a policy manual that corresponds to their particular manner of doing business. This sample policy will not, and should not, fit all companies. A good policy manual should cover the main areas shown in this sample and can eliminate many potential problems before they occur. SAMPLE POLICIES & GUIDELINES MANUAL PREFACE The purpose of this Manual is to set some basic policies and general guidelines to be followed in the day-to-day operation of the Company. It can never be so complete as to cover every incident, nor can it answer every question. In any matter not covered by this Manual, Management will decide and be guided in such decisions by experience, the Realtor's Code of Ethics, the Multiple Listing Service Rules, and the laws and regulations of the State Real Estate Commission, all of which are incorporated herein by reference. Management will, from time-to-time, make additions and revisions, which will be announced and published to become effective with reasonable notice. A copy of this Manual is always available for reference. SAMPLE REALTY is herein referred to as Company, Designated Broker, Office, Realtor, Firm or Management and Associates will be referred to as Agents/Managing Brokers/Brokers. The association of the Company to its Agents/Managing Brokers/Brokers is that of Independent Contractor and no Employer/Employee relationship exists or is to be implied from any title, provision or language used in this Manual. 144

145 One important goal of SAMPLE REALTY is to provide the greatest possible opportunity for personal and economic satisfaction for its Agents/Managing Brokers/Brokers. Ultimately, however, the success of Agents/Managing Brokers/Brokers is theirs to make. They are, in many ways, in business for themselves and will be respected as such. THE OBJECTIVE OF THE COMPANY IS TO MAKE A PROFIT. This can only be attained through our integrity, high principles and the ability to obtain results in all Real Estate matters. Every Associate is a part of this reputation and is expected to uphold it. DESIGNATED BROKER-BROKER RELATIONSHIP The opportunity is taken here to remind each Associate to read, and from time-to-time reread, the State Real Estate License Law. Agents/Managing Brokers/Brokers are required to follow the law to the letter. Agents/Managing Brokers/Brokers are reminded, particularly, that the Designated Broker is responsible for their acts. It is our belief that if Agents/Managing Brokers/Brokers adhere carefully to the guidelines, the Broker will never have occasion to appear before the Real Estate Commission in their behalf. Agents/Managing Brokers/Brokers are reminded, again, that they are Independent Contractors. The company will have no obligation to withhold taxes or Social Security from brokerage fees. To the benefit of both the Associate and the Firm, both parties will sign an Independent Contractor Agreement. In addition, at the beginning of each calendar year, an Independent Contractor Affidavit will be completed and signed by the Associate and Designated Broker. SUPERVISION Except as required by state law and rules and by-laws of multiple listing association to which designated broker is a member, no reports are to be made by associate and designated broker will undertake no supervision. The Designated Broker may from time to time provide the associate with income and expense and production reports. Associate is expected to endeavor in such a manner as salesperson sees fit providing the actions is legal, ethical, professional, and approved by the designated broker. The designated broker will not control, except as required by state law, the method of so performing legal, approved, ethical, and professional actions by associate. It will be the responsibility and the duty of the associate to conduct all transactions in a professional, legal and ethical manner. RISK REDUCTION Besides the obligations of all agents to practice risk reduction in all areas, at all times, all affiliated licensees are expressly prohibited from preparing or making available a market analysis, market appraisal, or opinion of value for any purpose other than to estimate a possible list price for property listing, and are further prohibited from charging any amount of money for this purpose and are prohibited from preparing or making these available for insurance, probate, court or legal proceeding, lawsuit, loan, request, or any other non-listing purpose. Agents will not show, walk, or otherwise describe or point out boundary lines, or make representations of the presence or lack of presence of utilities or any other seller representation. Agent agrees to accept these conditions and indemnify the firm completely, if this condition is not met. ETHICS Defined simply, the word ETHICS means moral principles and quality of practice. In the Real Estate business, ethics govern our professional relationship with our prospective buyers and sellers and with our fellow Realtors. Our ethics represent our honesty, integrity and spirit of proper conduct. The Company is a member of the National Association of Realtors, the State Association of Realtors and the local Association of Realtors. Each Associate, after association with the Firm, will make application for membership to the required Association of Realtors. 145

146 Each Associate in this Company should read the Code of Ethics as set forth by the National Association and the codes adopted by our local Associations and Multiple Listing Services. It is a must that every Associate live up to these codes. It is fundamental to say that to be successful, one must be ethical. We set ourselves apart from all others with our outstanding professionalism and conduct toward all Realtors at all times. It is our goal to never cause any harm to our fellow agents and to never have to appear before a grievance board. Most conflicts between agents and companies are due to misunderstandings or a lack of communication. We will do our best to solve all misunderstandings in a timely manner, to avoid conflict. I. OPERATIONAL GUIDELINES 1. ACTIVITY ASSOCIATION A sale board will be kept in the office to record daily activity regarding listings, sales, price reductions, and changes. The agents will update the board. In offices where there is a reader board, the sales manager will select an ad, and the secretary or an appointed agent will place the ad upon the board. The manager will rotate the ads among all agents, using the most representative ads. Reader boards also will be used as a public announcement of upcoming office events (open houses. grand openings, career nights). 2. AGREEMENTS / DELIVERY A copy of any written instrument must be given to the client or prospect when it is signed. This is especially important if the document is a contract. In order for there to be acceptance of an agreement by a party, delivery to that party is required. Delivery of a copy of every agreement must be given to all clients immediately, to become considered a legal binding contract. All paperwork is to conform to our office procedures, and items on our paperwork checklist are to be completed by the agent. Upon each accepted sale, a commission dispersal agreement will be filled out completely by each agent before any commission payment can be made to the agent. 3. AGREEMENTS / EXPLANATION SAMPLE REALTY agents will explain all provisions and ask if the document is completely understood. Without exception, they should read all contracts and agreements affecting the rights and liabilities of the parties. If a client or prospect is vulnerable (recent death, divorce, trauma, or other major problems), or has difficulty in speaking, reading or understanding the English language, advise the party to retain an attorney. Should the party decide to rely on the advice of a relative, friend or other person, that other person should sign as a witness to any agreement. If Agents/Managing Brokers/Brokers feel that a party does not understand the obligations or conditions of a transaction, they should recommend that an attorney be retained. 4. ATTORNEYS Attorneys send us a great deal of business and we appreciate it. It is generally a great advantage to a Firm when counsel represents a party to a transaction, and it is important that an Associate inquires as to the correct name of the attorney representing the parties. Under no circumstance is representation by an attorney to be discouraged. 5. ATTORNEYS / OFFICE The Company advises all parties in a transaction to obtain the services of an attorney, does not recommend a specific attorney, and lets the client chose freely. 6. AUTOMOBILE INSURANCE 146

147 Associates will furnish their own automobile and pay all own expenses and will furnish Firm with a binder showing the name of the Company with whom insured, policy dates, type of coverage, and limits of liability for personal injury and property damage. $100/500,000 or higher coverage is required, if stated in the agent contract,. Firm and Designated Broker will be named as "Additional Named Insured" in all policies. 7. BROKER COMPETITION The Designated Broker RESERVES THE RIGHT to list properties and work with prospects as desired, however, it is not the policy of the designated broker to compete with the company agents. Agents are considered to be first in line for all office referrals. All office-generated leads will be split on a 50% basis with the company, and may or may not be accepted by the agent unless otherwise agreed in writing. 8. BUSINESS CARDS The company, using the company format only will pay for the first 1,000 business cards. See your manager for approved format. The Associate will pay for all additional business cards. The cards must be uniform and bear the Firm's logo. No titles other than sales associate will be allowed, except in the case of a hired manager or trainer. No one will use "specialist, or expert, or any other distinction without written permission from the company owner. This is intended to lessen liability for the agent, and not as a hindrance. All cards must have a photo of the agent and the company phone number. The back message of the card must conform to the company format, or be approved by the owner prior to printing. 9. BUYING AND SELLING PROPERTY The Company does not object to Associates buying or selling Real Estate either as individuals or as members of a syndicate or group. When Associates are buying individually, or as part of a group, they must inform the owner of their licensed status. Associates buying or selling an investment property through the Company, for their own account, will pay the Office a percentage of the purchase or sale price equal to the usual Company share of the brokerage fee. Purchase of Company listings must be discussed with Management prior to a contract being written and is not encouraged. The Company has the right to participate in any purchase involving a company listing. When the Company and Associate jointly purchase a property: a. If the sale involves a property listed by an Associate other than the participating Associate, then a listing fee must be paid to the listing Associate. b. If the sale involves a property listed by the participating Associate, the Associate may take a listing fee based on a 50/50 fee arrangement. An Associate may buy or sell a personal residence without paying a brokerage fee to the Company once per year provided it is for their own use as the main personal residence. This does not include investment properties. However, if any of our company forms and/or expertise, advise from our designated broker or agents, or any agency exists within the transaction, or if any liability to the company is attached to the transaction or if MLS is involved, then a minimum of a 6% brokerage fee must be paid to the Company. 10. CHARGEABLE EXPENSES An Associate traveling out of town to obtain a listing or effect a sale must be prepared to meet the expense of such a trip. For example: automobile, food, entertainment, lodging, etc. 147

148 Office supplies, such as letterheads and envelopes to be used by the Associate for individual newsletters or mail outs, will be purchased from the supply catalog. Associates will use only company supplied pagers. The pagers will be supplied at no cost to the agent in each month that the agent has written a bonafide listing or sale. In general, Associates pay for personal business expenses such as insurance, license fees, trade association memberships, sales promotional items, and business cards. A proportionate share of the Errors and Omissions Insurance will be paid by each Associate on a per transaction basis. Associates will be responsible for their own deductible amounts owing. Other specific expenses chargeable to Associates are mentioned throughout this Manual. 11.CHARGEABLE ITEMS SAMPLE REALTY will not make loans to agents or give draws on commissions. Accounts receivable must always be in a current condition and paid if full each month. When an agent has many commissions due to close, it may be the choice of the company accountant to deduct the amount owing from the commission checks. If at any time the amount due on ARs is over $200, arrangements to make payments must be made by agent and the accounting department until ARs is fully paid. On all items billed to the Company and chargeable to an Associate, an account is kept and at the end of each month, the Company will be reimbursed. If unpaid at the time the next brokerage fee is paid to the Associate, the Company will deduct the amount due. 12. COMPLAINTS AGAINST/from OTHER OFFICES Associates who have complaints against other offices should consult with the Designated Broker at once. Complaints against offices should never be discussed with buyers, sellers or other Associates. Any complaints or disputes with other companies must be brought to the attention of the manager immediately. Our company policy is to remedy problems and disputes without delay. Managers are to follow up all complaints and or disputes to the involved parties in writing immediately after contact. It our policy to give the complaining party an opportunity to communicate the entire problem, and to "vent." Then we should ask the party for any possible solutions. Next, we accept the solution, modify the solution, offer additional solutions, or work on a compromise, if possible. Always obtain the prior approval of management before making a final agreement. It is always our policy to work in a cooperative effort with other companies. 13. CONDUCT In the office, the Golden Rule must be remembered. All Associates are entitled to respect and must be given the opportunity to concentrate on outlining their day's activities and conducting their business without unnecessary interruptions. Good fellowship and a sincere desire to be cooperative and helpful are encouraged. Loud talking, boisterous laughter and horseplay are entirely another matter and have no place in a successful business office. The office is not a place in which to loiter and all Associates are requested to use it strictly as a place of business. Teamwork makes us great. Loyalty and bonds between agents makes a great team. It is our policy to refer to all SAMPLE REALTY agents and affiliates as first class. We all conduct ourselves in a professional manner at all times and carefully guard our company reputation. Every agent's conduct is a reflection of our entire company, and it is our goal to be held in the highest regard. Always keep your word, to clients as well as other agents. It is better to promise less than more. It is of utmost importance to uphold our integrity. Our company service will always be first class, and this will be without exception. 14. CONFIDENTIAL RELATIONSHIP It is office policy to keep personal or business problems of clients strictly confidential and they should not be discussed with others. Always keep the confidentiality of your buyers or sellers, and never give 148

149 out any information, which could put them in a position of compromise or vulnerability. Keep all paperwork from public view, and the view of other agents to protect your clients. Never give out client names or any information about any clients to mailing list users such as moving companies, furniture stores, etc. 15. CONTACT WITH OFFICE Beepers or paging devices are part of a professional image. However, there may be times when they aren't in use. During those times, Associates should keep in close contact with the office and should not be out of contact during business hours for periods longer than two hours. Always work with another agent who can reciprocate with you when you take time off. Partnerships in real estate are discouraged, but a buddy system, to cover for an agent's day off is strongly encouraged. Agents taking time off must have someone covering their clients, or leave working contact numbers, where they can be easily reached. 16.COPY MACHINE The Company will pay all copies necessary for the completion of a transaction or for the general business use of the Associates. Any copies made in large quantities for large mailings or handouts, etc. must be made at a copy shop. Our office copier is not designed to large masses. No one is permitted to reproduce copyrighted materials at any time. 17. DESK FACILITIES Full time active agents will have first priority for assigned desk space whenever available. Depending upon the availability of desk space, Associates may be asked to share desk facilities. Newly licensed agents will begin with a temporary workstation where they can train and be mentored. After training and with the recommendation of the sales manager, they will be assigned a desk. Agents are expected to keep their desk area neat and to be considerate of other agents and secretary desks. Please do not remove any property from another agent's or secretary's desk. 18. DISCRIMINATION The Company always adheres to the Supreme Court decision of In the case of Jones vs. Mayer and all Federal, State and Local laws and regulations whereby all people, regardless of race, creed, color, religion, or national origin, have the right to choose where they wish to live and the homeowner will, in accordance with this decision, agree to sell the house to them, if all pre-set conditions are met. 19. DRESS It is required that all Associates dress neatly and appropriately, in accordance with good business practice such as jackets and ties, business suits, business dresses, or business pant suits. Agents and staff members will not wear gym clothes, sweats, shorts, or slogan tee shirts/caps, or revealing clothing to the office. 20. EXPENDITURE OF OFFICE FUNDS Management will not be liable to the Associates for any expenses incurred by them, or for any of their acts, nor, except as otherwise stipulated in this Manual, will the Associate be liable to Management for office help or expense. Associates have no right to spend the money of the Firm without consent of the Designated Broker. This applies to cards, signs, advertising, etc. If Associates desire such money to be spent, they must make written arrangements with the Designated Broker. 21. KEYS Keys are not to be given to purchasers pending the closing of a sale without written permission from the seller. If buyers wish to inspect or measure the property prior to closing the selling, Associate should be present. Keys may be given to appraisers or inspectors only as authorized by the seller. The Company never recommends allowing buyers to move in, even partially, or doing any work on a property prior to closing. 149

150 22. KEYS/ USE When using a key to enter a home when the seller is not expected to be there, be sure to ring the doorbell and wait a reasonable time. Then use the key. And, upon entering the house, CALL OUT to determine again that there is no one at home. If a home is entered by the use of a key, be sure to leave your business card in a conspicuous place noting the time of day you were there. Associates using a key should, before leaving any property they have shown, check all doors and windows to determine that they are securely fastened or locked. 23. LEGAL ADVICE An Associate must not give legal advice, directly or indirectly. This includes advice with regard to the legal rights of the parties, the legal effect of notices, and instruments, and matters affecting the title. When a question is raised by the buyer or seller and the Associate knows the answer, but it might be bordering on legal advice, it must be made clear that only attorneys can give such advice. Agents are not allowed to create lengthy addenda to an earnest money agreement. It is the policy to limit any written addendum to one page. If the addendum will require more than one page, manager must give prior approval. Agents will not prepare lease option agreements, lease purchase agreements or other forms relating to property management, commercial business or rentals without prior approval from manager. Even if legal advice is correct, it is still illegal to give legal advice unless you are an attorney. 24. LETTER WRITING All letters or any other written communications or direct mail, involving the Company directly or indirectly, must be approved by Management prior to mailing. 25. LONG DISTANCE CALLS Long distance calls are considered an agent expense and agents will use a calling card, which is billed, to their home. The Company will accept no collect calls. Any collect calls accepted by a Associate will be charged to the Associate. 26. MESSAGES All messages for Associates should be taken in an efficient manner and placed in the Associate's message box. Agents will be immediately paged and the message form will be marked "paged." All agents taking messages will take them in writing, page them out, and mark them paged. It will be the Associate's responsibility to pick up these messages upon entering the office and to service all calls immediately. Agents should also check their mailbox daily for mail and notices. 27.0BLIGATING THE BROKER An Associate will have no authority to bind the Designated Broker by any promise or representation unless specifically authorized to do so in writing. 28. OFFICE APPEARANCE It is important that the office always appear neat and orderly. All Associates and employees are, therefore, urged to be conscious of this fact: DESKS and surrounding areas should be kept neat at all times. 29.0FFICE EQUIPMENT/SUPPLIES Office equipment, supplies, reference materials, etc., will not be removed from the office without the Designated Broker's permission. Materials deemed necessary to complete a Real Estate transaction outside the office are excluded. The Secretary's desk is the property of the Company and nothing should be removed from the desk, at any time, without permission. Upon termination of a Associate's association with the office, all equipment, supplies and reference materials must be returned to the office. 150

151 No software will be copied or illegally installed by any agents. Agents will not tamper with computer systems at anytime. 30. OFFICE HOURS Office Hours of the Company will be posted. Managers will have a key to enter at any time for business purposes. 31. OFFICE RECORDS Copies of all letters pertaining to Real Estate, regardless of whether the Associate or others write them, as well as copies of all contracts and agreements, will be placed in the proper office files. All original paperwork belongs in the main office (Mead) and all copies belong in the branch offices. This is the only protection that the Designated Broker has in the event of a lawsuit and full knowledge of the case is important. There will be no excuse for the violation of this guideline. 32. PART-TIME vs. FULL-TIME Part-time or full-time is not measured in hours. It is the overall result and productivity that will determine the Associate's tenure. It is not the intent of the Company to hold licenses for partproductive Associates. We do not hire part time agents. Real estate is not a part time business. New Associates should spend most of their time obtaining listings and inspecting existing listings during the first 30 to 60 days of their association with the Office. 33. PETTY CASH There will be no petty cash kept in the office. The Company, at its option, will credit or reimburse a Associate for all legitimate office expenses, provided that a receipt is submitted. 34. POSTAGE COST The Company, except as otherwise stated in this Manual, pays normal business postage. Mass mailings, approved by Management, will be handled and paid for by the agent. On mass mailings, postage costs will be paid by the Associate unless otherwise covered in this Manual. The Secretary will meter all other mail at 5:00 PM, daily. Outgoing mail in company envelopes must never be sealed. Personal mail will not be placed in Company envelopes. The Company will meter personal mail only when the postage cost is given to the Secretary prior to mailing. 35. PROSPECTS/ REASSIGNMENT The Office will have the right to assign a client or prospect to another Associate, if it appears that the client or prospect is being neglected or improperly handled. We will at all times give every priority to the listing agent. Agents may not reassign to another agent at any time without designated broker's written approval. 36. REAL ESTATE ASSOCIATION ACTIVITIES Membership in the appropriate local Association of Realtors, the National Association of Realtors, and the State Association of Realtors is required of all Associates. It is strongly encouraged that Associates should, within their time limits and abilities, support the Association programs and activities and attend educational programs, whenever possible. 37. REFERRAL FEES Referral fees of any kind may only be given or accepted in accordance with the Real Estate License Law. The recommended referral fee on transactions is a minimum of 20% of the listing or selling fee. The Company must approve all referral fees, if it is to participate. The maximum brokerage fee that an Associate will receive for referrals to or from other Designated Brokers/Firms is 50%. All company-generated referrals given to agents will be split on a 50% basis. Refer to your contract. 38. RESPONSIBILITIES Association with our Company entails responsibilities. These responsibilities are covered elsewhere in this Manual but Associates are reminded, if they expect true cooperation from fellow Asoociates, they should: 151

152 1. Always maintain a positive attitude concerning your work environment, other agents, and real estate in general. 2. Use every effort to control the urge to complain. Complaining never solves problems. They are only solved by action. Complaining is contagious, and we have no place for it in the working environment. 3. Praise and compliments of fellow workers, goes a long way. We all work very hard, and take on a lot of personalities during our days. It costs nothing and means so much to know that you are appreciated as a part of a winning team. Be especially sure to mention the good deeds of others at every sales meeting. 4. Loyalty cannot be overstressed! Our personalities are different but that is what makes us so diversified and successful! Let's always look for the best in everyone! Keys to teamwork: a. Obtain your share of listings. b. Be willing, at all times, to share information which will enable fellow Associates to consummate a transaction. c. Dress properly for appointments and use car signs. Image is important for success in Real Estate. The last staff person to leave the office in the evening will be responsible For: a. Calling the Answering Service b. Turning off the lights c. Turning off the coffee machine d. Turning off computers and copiers e. Checking all doors and windows and locking up (See closing and opening procedure) The first staff person entering in the morning should call Answering Service for messages. 39. SALES MEETINGS Regular weekly office Sales Meetings will be held. It is required that Associates attend and be on time for these meetings. Awards Quarterly awards will be given. It is important that we all attend this very important function, and give support and cheers to our award winners! 40. SECRETARIAL ASSISTANCE The office secretaries process your paperwork, and turn in ads, but do not act as personal agent assistants. The manager will be available to advise Associates. So that all Associates may receive as much help as is necessary, Associates should not require assistance for those things that they should do themselves. The secretary will turn in ads for you, if they are turned in to her. You will need photos of each listing taken, plus ad forms on each property. It is the responsibility of the agent to turn these in to the secretary and to check with the main office administrator's file to see that they are in and current. 41. SHARING INFORMATION It is the policy of this Company to share information with other offices. This, of course, does not mean giving confidential information, but giving information concerning properties that are available. Only licensed agents may give out listing information. 42. SHOWING PROPERTY It is our company policy, and mandatory in every case, that the agent will not point out or show or in any way give the impression that the agent knows where the boundaries of any given properties are located. It is the duty of the seller to show the boundaries of their own property. We do not know where the boundaries are, and if this is a concern, suggest that the buyer obtain a survey. This will dramatically reduce our liability. Agents cannot know for sure where any boundary lines are, even if seemingly obvious, and are prohibited from attempting to "walk" boundaries or show where they are. 152

153 We always call and ask for the permission of the listing agent to show property, followed with a call to the seller for an appointment. Treat the listing firm's sellers as if they were your own. Give them every courtesy. If the listing does not instruct us to call the seller, request listing agent to make an appointment. Never offer your opinion of the listed price of a property, even if asked. We do not second guess the listing agent, or make them look incompetent. Do not discuss the listing agent or their company, and in no case do we ever solicitude an active listing in any way. Always lock the house securely, and always leave your business card. Do not leave brochures or flyers in another agent's listing. Return any keys promptly. When borrowing a key from a cooperating office, in order to inspect or show a property, never keep the key over two hours. No matter what inconvenience this causes Associates, they should strive to comply with this recommendation. Do not contact owners regarding offers. An offer must be submitted through the listing office, never directly to the seller. Never discuss the ethics of another licensee with anyone other than your Designated Broker. 43. TOURS (CARAVAN) Only the exclusively listed properties are toured. Tours are conducted in a group following the weekly Sales Meeting. It is up to the listing Associate to schedule a tour and to: a. Set up the appointment. b. Provide access to the property. c. Conduct the tour and answer questions. d. Introduce the other Associates to the owner. e. Report back to the owner on the same day, in general terms, and thank the owner. Tours may be arranged and conducted for the purpose of obtaining listings with prior approval of Management. 44. TRIAL AND LEGAL EXPENSES If any transaction in which an Associate is involved results in a dispute, litigation or legal expense, the Associate will cooperate fully with the Designated Broker, and Designated Broker and Associate will share all expenses connected therewith, in the same proportion as they would normally share the brokerage fee resulting from such transaction if there was no dispute or litigation. Our policy is to avoid litigation whenever possible. The Designated Broker reserves the right to determine whether or not any litigation or dispute will be prosecuted, defended, compromised or settled, the terms and conditions of any compromise or settlement, and whether or not legal expense will be incurred. In the event that legal costs are incurred due to the defense or action of the agent, the amount may be deducted from the actual commission or future commissions due to the agent in the same proportion as the agreed split. II. OFFICE PERSONNEL ADDRESS CHANGE It is important that all employees immediately notify the office of any change in home address or telephone number. This information is needed to update personnel records. HOLIDAYS The Company will observe the following legal holidays: New Year's Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. The day after Thanksgiving is a working day and not a holiday. To be paid for holidays you must work your scheduled day before and after the holiday or forfeit that pay of that holiday. No exceptions will be made. OVERTIME Management does not intend for the workload to necessitate overtime. No employee is authorized to work overtime without prior written permission. However, should overtime be necessary, overtime will 153

154 be paid to the employee in accordance with State and Federal Labor Laws. Equal time off may be given in lieu of overtime income. SALARY PAYMENTS Payday will be Bi-monthly. SICK LEAVE Employees will be allowed 6 sick days per year on an earned basis of 1/2 day per month. If these days are taken within 2 days of vacation or holiday a physician's statement will be required. Sick days may be carried over for a maximum of 3 months. VACATIONS Employees are entitled to vacations computed on the following basis: Employees who have been with the Company for one year will be entitled to a one week paid vacation. TIME CLOCK The owners must approve any change in employee's normal working shift in advance. Employees are expected to work assigned hours and take assigned breaks and lunch period. Shifts, days, hours and schedules may not be changed or altered in any manner by the employee. Total hours must remain as scheduled. Working through a lunch break for pay is not allowed. Employee is to clock in at and out at the exact time of the beginning and end of their shift. Employees may not clock in or out prior or after working shift hours for any reason. Employees are not to remove time cards from the designated area for time cards. Employees must clock out for any non-work reason. No checks will be issued without a properly filled in time card. OVERTIME Overtime is never allowed without advance written permission. Employees may never take it upon themselves to extend their hours. ILLNESS Employees will not come to work ill or complaining of illness. Employees complaining of illness or coming to work ill and / or non-productive to the company will be sent home until fully recovered and able to be productive on the job. Employees with a history of missed days, poor attitude, tardiness, gossiping, complaining, improper dress, or being a party to anything which would adversely affect the company, will be terminated. III. BROKERS/MANAGING BROKERS BROKERAGE FEES 1. Collection Decisions to take legal action to collect fees due will rest solely with Management. Expenses of collection will be deducted from the total amount recovered and the balance paid to the Associate on a 50/50 schedule regardless of any increased fee arrangement. It is understood, however, that if a lawsuit is instituted and the case is lost, the Associate(s) involved must share in all expenses connected with the lawsuit. 2. Forfeitures of Deposit The deposit will be disbursed according to the written agreement between buyer and seller. 3. Payment Designated Broker will pay all brokerage fees as soon after funding as possible, but never later than one week after receipt. Disbursement of checks will be made by 5:00 PM the same day, if all papers are taken to our account by 10:00 am. 4. Payments / Deferred The decision to accept a note or other security in lieu of, or as part of a brokerage fee due, will rest solely with Management. They are strongly discouraged, and must be approved in writing by the 154

155 company owner. NO EXCEPTIONS WILL BE MADE. Any deferred commissions will be on a 50% split. Interest on deferred payments will be treated as part of the fee. Deferred brokerage fees, received by the Company on a monthly basis, will be paid to Associates on a quarterly basis. Quarterly, semiannual and annual payments received by the Company will be disbursed to Associates as received. 5. Reductions Agents are not authorized to reduce any real estate commission amounts, even if they wrote the commission amount. All reductions must be approved by management prior to any negotiation. When a brokerage fee is reduced in order to effect a sale, the maximum an Associate will receive will be a brokerage fee split equal to the percentage they received at the beginning of the year or the Associate has the option of absorbing the entire reduction. Company approval must be obtained in advance. If Company approval is not obtained in advance, the entire reduction will be borne by the Associate reducing the brokerage fee. When simultaneous in-office contracts are presented to a seller, the brokerage fee will NEVER be reduced. 6. Same Prospect It is conceivable that two or more Associates might legitimately secure the same prospect and show the same property. Should such a situation arise, the Company will recognize, as far as brokerage fees are concerned, the Associate who is successful in obtaining a completed contract acceptable to the purchaser, seller and the Company. If an Associate knows that a prospect has recently worked with another Associate in the office, then that prospect should be referred back to the first Associate. If the prospect does not wish to work with the first Associate, then the second Associate should immediately work with the prospect. Always use an exclusive right to locate property form for each buyer to protect yourself, and show written proof of your relationship with the client. 7. Schedule / Company The minimum brokerage fee accepted by the Company on all residential and commercial sales is 6%. A 10% brokerage fee is minimum on all land and acreage transactions. In any case, the minimum commission accepted by the company is $1, total. Agents are not authorized to arrange leases or rental agreements, or enter into any type of property management for others or for themselves, without prior permission from the broker in writing 8. Schedule/ Other Brokers Multiple listing residential sales will be divided with cooperating brokers on a 50/50 basis. 9. Schedule / Agents/Associate Brokers Associates may not accept any fees or compensation, from any source other than the Company, for services or advice in any matter involving Real Estate including CMAs, opinions of value or other sources. Agents are prohibited from preparing, giving, providing or selling CMAs, or opinions of value for any purpose other than in preparation for an actual listing. In no case may an agent charge any amount of money for this listing preparation service. We REQUIRE this language on each and every CMA: This broker's price opinion and /or Comparative Market Analysis is NOT an appraisal as defined in RCW and has been prepared by a real estate licensee, licensed under RCW 18.85, who is NOT a state certified or state licensed as a real estate appraiser under RCW This Comparative Market Appraisal may not be used for any loan purposes, insurance purposes, probate purposes, or in any legal actions or proceedings involving the principals or the designated brokers, firm or their agents, in any transaction, whatsoever. This Comparative Market Analysis is for the purpose of estimating a listing or asking price only and is subject to change at any time. 155

156 10. When two Associates list a property together, both of their names will appear on the Authorization to Sell Agreement and they will share the listing fee. 11. When two or more Associates work together with a prospect and effect a sale, they will share the selling fee. 12. All agreements between Associates, not outlined in this manual will be submitted in writing to the Designated Broker. 13. All Associates are required to furnish proof of their transactions being closed (a closing statement signed by both buyer and seller) before fees will be disbursed. 14. If an Associate leaves the office, an additional 10% of the Associate's fee on any transactions pending may be retained for follow-up completed by the Company. Deposits, Offers and Acceptances 1. Acceptance In the event the seller is out of town and a contract is written the listing Associate may telephone the owner for acceptance. This acceptance may be by FAX and should so state in the contract. To provide for such acceptance, add this clause to the contract: THIS AGREEMENT MAY RE ACCEPTED BY FAX. Acceptance is realized when the FAX has been received officially by phone or mail and the buyer has been so informed. The contract should then be sent to the out-of-town sellers for their signatures. It is the policy of this Office that no property will be taken off the market until the acceptance is received. Therefore, until a seller has accepted an agreement, other offers may be presented. 2. Additional Deposits When a contract is accepted, the SELLING Associate is to promptly follow up and collect the additional payment of earnest money as provided in the contract. If the purchaser delays even one day in paying the additional earnest money due: a. The Designated Broker, the listing Associate and the seller must be promptly notified of the buyer's delay. b. The selling Associate should continuously pursue compliance. c. The selling Associate should report success or failure each day thereafter. 3. Checks When a check is given to the Company as an earnest money deposit, it must either be made payable to, or restrictively endorsed to the Company (Escrow Account). Checks must be PROMPTLY submitted to the Office. If Associates are responsible for any monetary loss to the Company, due to NEGLECT or MALPRACTICE on their part, then they will be responsible for the full amount of said loss. Promissory notes may be accepted as an earnest money deposit and must be approved by Management. 4. Earnest Money (Deposit) The recommended deposit will be no more than 10% of the sales price, but in no case over $10, Multiple Contracts 156

157 In the event a second contract on a property is received prior to acceptance of an earlier contract, the buyers making the first offer should be made aware that there is a second offer (do not divulge the amount of the second offer) to give them a chance to raise their initial offer so that the Company can secure the best possible price for the seller. The buyers making the second offer should be made aware that a first offer exists and that they should make their best offer to the seller. No offers are to be withheld from the seller awaiting a possible third offer. However, if a third offer already exists, it must be presented at the same time to the seller. If the listing Associate is also one of the selling Associates, the Designated Broker, Manager or a third party should present the multiple contracts. 6. Presenting the Contract Never try to make a decision for an owner. The State Real Estate License Law requires that all offers must be presented. The deposit receipt or contract must immediately be presented to the seller. The listing Associate should be notified of a pending contract before it is presented. It is usually better to submit the contract to the seller with the listing Associate present. In most cases, the listing Associate will know the best approach to that seller and can usually be of great assistance to the selling Associate in making the sale. 7. Returning Deposits When both parties have signed a contract and it is necessary to return a deposit, it may be done so only by having a RELEASE ON DEPOSIT form signed by all parties involved. Checks for deposits will immediately be placed in the Company's Escrow Account. Checks must be cleared before a deposit will be returned by the Firm. The clearing time for local checks is ten working days, while out-of-town checks require fifteen working days. Agents may not offer their opinion on whether or not a deposit will be returned or forfeited. Farming An Associate working a Farm area may use the phrase ''I am specializing...," and will be permitted to use past office records and statistics to show a track record. The Associate must NEVER indicate that "I sold," if the statistics used are from the office records. The phrase "We sold" must then be used. Open House cards can be mailed by the person holding the Open House, even if the property is located in another Associate's Farm. The listing Associate will have first right to send Just Listed Sold and New Neighbor cards and the name of the listing Associate will appear on the cards. If the listing Associate does not wish to send these cards, then the Associate farming the area may send them and the agent's name will appear on the cards. Although we are interested in protecting the "Farmers," we feel that it is unfair when this protection, in any way, hurts the Company or any other Associate associated with the Company. No Associate will, in any way, demean another Associate. State YOUR credentials, but do not infer that another Associate is incapable. Floor Time and Inquiries 1. Ads The company will PAY FOR ALL OPEN HOUSE AND NEWLY LISTED ADS. 2. Definition Floor time is the time given to Associates for handling phone inquiries and walk-ins pertaining to the listing and selling of properties. Floor time is NOT mandatory. Associates requesting floor time will be given this opportunity in accordance with the guidelines set forth in this Manual. 3. Hours 157

158 Floor time hours will be posted monthly. No appointments should be made and no closings should be scheduled during floor time hours! However, if a listing or prospect call is received during floor time, these calls should be serviced immediately. It will be the responsibility of the floor person to find a replacement should it be necessary to leave the office. 4. Inquiries All inquiries for newspaper advertisements (classified or display), Real Estate Market Magazine ads, walk-ins and call-ins will go to the floor person (except as otherwise stated in this Manual). The floor person should be familiar with all advertising and complete the Daily Ad Call record form used by the Office. The afternoon floor person will submit this form to Management. The lead management process will be used at all times. The listing agent will be paged for an ad call. If the agent chooses not to answer the page in 10 minutes, the call will go to an available agent as a company referral. If a prospect walks into the office and asks for a particular Associate, the following will apply: Every attempt will be made to locate the Associate at that time. The Receptionist/Secretary will call the Associate requested, first at home, then by calling their beeper number. In the event the Associate cannot be located immediately (within ten minutes), then the prospect will be referred to the floor person. The above "lead management" program applies. 5. Inquiries / Call-In Listings If a listing call comes in, the floor person will ask, "Is there a particular Associate you would like to speak with?'' If the answer is "No',' the call goes to the floor person without any further questions. If the answer is ''yes',' then the call will go to the Associate named. If the answer is "Yes, I would like to speak with the Associate that sent me literature" or "Yes, I would like to speak with the Associate that's working my area," the floor person might ask a second question: "Since we have several Associates working your area, do you know the particular Associate's name?" If the answer is "No',' the call will go to the floor person. All other listing calls will be handled at Management's discretion. 6. Inquiries/ Sign Calls The floor person will make every attempt to determine which Associate's sign originated the prospect call by: a. Asking if there was a name on the sign. b. Asking for a specific address. If both of these answers are negative (the prospect indicates only that they have ''seen signs in the area"), it will be deemed impossible to determine the origination of the sign call and the call will go to the floor person. The only exception is when it can be easily determined that a particular Associate specializes in the area mentioned. If the origination of the sign call can be determined, it will be handled as follows: A sign call from a prospect will go to the listing Associate. If the listing Associate is not in the office, it will be the responsibility of the floor person or Receptionist/Secretary to call the listing Associate at home, or call the Associate's beeper service to contact the Associate. If the listing Associate cannot be contacted within ten minutes, then the call will go to the floor person who will immediately contact the prospect. If the caller will not leave a name or telephone number, the call will also go immediately to the floor person. Our primary objective is to service the public, so in these instances the floor person handles the call. If a face-to-face appointment is made with a prospect at a time, which occurs prior to the listing Associate making contact with the office, then the floor person will go on the appointment and the prospect belongs to the floor person. If, however, the listing Associate makes contact with the Office prior to the scheduled appointment time, then it will be the floor person's obligation to inform the listing Associate of the appointment time and all prospect information. The listing Associate will have the option of going on the appointment or giving the prospect to the floor person. 158

159 Should the prospect be given to the floor person, the listing Associate will receive no portion of any brokerage fee. Should the listing Associate decide to go on the appointment, then the floor person will receive a 10% referral fee from the listing Associate, should a transaction be consummated with this prospect. The following will apply when there are two or more signs on a specific street: a. If the prospect knows the address of more than one sign, and two or more Associates are involved, and then the call will go the floor person. EXPLANATION: Management is of the opinion that if a prospect is calling because of several signs erected in one area, then it is not the floor person's responsibility while the prospect is waiting on the telephone, to determine which Associate should get the call if both are in the office or if neither is in the office. 7. Floor Time Schedule The floor time schedule is a monthly list of Associates who request floor time. Floor time schedules run seven days a week, 52 weeks a year. The monthly floor time schedule will be prepared monthly. It is determined by those Associates desiring floor time. Any desired changes in floor time may be made at any time, by mutual agreement of the Associates. In order to properly handle floor calls, the floor person should be familiar with all office listings. It is suggested that Associates requesting floor time strive to attend weekly Sales Meetings and office caravans. 8. Telephone It will be the responsibility of the CSR to answer all incoming calls and take messages for other Associates. Associates should assist, when necessary. A message book or "While You Were Away'' pads should be used to record all calls. Listings 1. Acceptance All listings must be accepted and approved by Management. 2. Cancellations No listing can be withdrawn or canceled without the consent of Management. If a seller who has listed his property for sale desires to cancel the listing, Management can, if it so desires, agree to do so. If the entire brokerage fee is paid by the listing party for such cancellation, then listing Associates will receive a brokerage fee on the same percentage as if they sold their own listing. No withdrawals may be made without the seller signing the Authorization to Sell Cancellation Agreement and receipt of a check for reimbursed expenses from the seller or the Associate. 3. Changes Changes in price, terms or other vital information regarding a listing will be reported to the Secretary on the proper form by the listing Associate. She will make the proper changes in the file and notify the other Associates by placing the change on the Activity Association Report. Changes will be reviewed at the weekly Sales Meeting. Cost for changes due to a Associate's neglect in completing the original Property Information Sheet will be included by the Associate. 4. Ethics Code of Ethics, NAR, Article 4: Realtors should ascertain all pertinent facts concerning every property for which agency is accepted, so that they may fulfill their obligation to avoid error, exaggeration, misrepresentation, or concealment of pertinent facts. 5. Exclusive Right to Sell It is the policy of the Company to work only on exclusive right-to-sell listings (multiple listings) at a minimum brokerage fee of 6%, except as otherwise stipulated in this Manual. 159

160 It is contrary to the Real Estate License Law of the State to accept NET LISTINGS. The Company will accept open listings on commercial properties, provided that they are in writing. 6. Listing File Under no conditions are listing files to be removed from the Office. Should information be removed therefrom, and not returned, the Office records would be severely crippled. It is therefore requested that any desired information is duplicated and the listing files remain in the Office. 7. Lock Boxes The cost for Lock Box keys will be incurred by the Associate. 8. Reassignment The Designated Broker reserves the right to reassign a listing to another Associate, if it is deemed necessary, due to originating Associate's improper handling of the listing. Associates are not authorized to reassign a listing to another agent. 9. Reassignment Upon Termination All listings are taken in the name of the Company and remain the property of the Company. Any unsold listings will be assigned to other Associates, at the discretion of Management, upon termination of an Associate. 10. Referrals /Management Management often receives referrals for listings. These listings may, at Management's discretion, be given to Associates, in whole or in part, whom Management feels can do the best job and who best exemplify the Company image. An Associate accepting a referral from Management agrees to accept a brokerage fee based on a 50/50 brokerage fee split. 11. Responsibilities of Listing Associate a. To complete the Authorization to Sell Agreement and Property Information Sheet and submit both to the Office. b. To submit all listings promptly / no pocket or purse listings. c. To see that listings are properly set up for tour (caravan), open house, proper promotion, and advertising. d. To install a lockbox, if approved by the owner. e. To use every possible means to obtain accurate information regarding the listing. f. To keep in contact with the owner. g. To present all contracts promptly. Common knowledge will determine what constitutes an UNREASONABLE DELAY in presenting a contract. 12. Sharing Fees When two Associates secure a listing, they will enter both their names on the Authorization to Sell Agreement and the Property Information Sheet and will share the listing fee. Any agreement to share a fee, in a manner other than 50/50, should be in writing and signed by both Associates. 13. Submitting Listings to Multiple Listing Service As Realtors, we are members of several Multiple Listing Services and it is our policy to submit every listing to the proper service, based on property location. This fee is paid by the Company. Should Associates desire to place the property on additional Multiple Listing Services, then they will incur the costs of the additional placements. Advertising PROMOTION 1. Company Philosophy Our Company is working toward a balanced advertising program. For this to be accomplished, the Company must not be bound by sellers who expect, or demand, special advertising on their individual properties. It is with this thought in mind that we should define our general policy. 160

161 The Company reserves the right to select and use advertisements which will fit into a well-balanced program and secure the greatest number of prospects for seller's properties. It is a policy of the Company to advertise only those properties on which the Company has an Exclusive Right To Sell listing. 2. Cost The company will pay for newly listed and open house ads in the Sunday Paper. All other ads are on a rotation basis. Agents may pay for additional advertising and self-promotion is encouraged. 3. Placement The Secretary will place all ads. All due dates for ads will be posted. No Associate will advertise another Associate's listing or hold another Associate's listing open without the listing Associate's permission. DIRECT MAIL The following disclaimer must appear on all Introductory Letters, Mailers or hand delivered Flyers: "If your property is currently being marketed by another Firm, please disregard this notice. In no manner should this communication be construed as a direct /indirect solicitation '' 1. Announcement Cards Upon association with the Company, each Associate will be given 100 announcement cards. The Company will pay cards and postage. 2. Newsletters Stationery, printing and postage costs for these items will be paid by the Associate. 3. Just Listed Cards Each Associate will be allowed to mail 50 cards for each listing obtained. The postage will be paid by the Associate. 4. Just Solds At time of closing, each Associate will be allowed to mail 50 cards. Same as above. 5. Open House Cards Each Associate will be allowed to mail 50 cards for each open house. Same as above. 6. Promotional Flyers All costs for promotional flyers, including recipes, school calendars, football schedules, etc., will be paid by the Associate. 10. Variations All other direct mail promotions should be approved by Management. They are encouraged, but should not conflict with existing Company Direct Mail promotions. MARKET MAGAZINES Ads It is the policy of the Company to advertise in market magazines. The Company pays selected advertising expense and Management will select all advertised properties. 2. Award Page The Company, at its option, may reward the top three producers, from time-to-time, by taking a full page, just for them, in a market magazine. Open Houses 1. Company Philosophy Associates may hold open houses when desired, however, they must have permission from the owners. The suggested MINIMUM time for an open house is three hours. An Associate who has 161

162 agreed with an owner to hold a house open must keep the appointment. The owner should not be disappointed. Open house ads, if desired, are paid for by the Associate placing the ad. At least 6 signs should be used for directions. 2. Handling Ad Calls All open house ad calls received during floor time hours by the floor person, on the day of the open house, will be referred to the Associate holding the house open. If the Associate holding the open house is unavailable, or cannot be reached, then the floor person will handle the prospect. 3. Leaving Open Houses Unattended No Associate holding an open house should leave the property, for any reason, during the hours it is advertised as open. The only exception is when the property is sold and both parties sign the contract. The Associate should place a sold sign on the property and then may leave the open house. 4. Promotion When a date and time for an open house has been determined, the Associates should inform the Firm and, at their option, submit an open house ad for insertion in the newspaper in accordance with the newspaper deadlines and Company guidelines. Open house ads should be submitted on the proper ad form for placement. Open house invitations should be mailed no later than four days prior to the open house. 5. Signs The Associate should pre-determine the number of open house signs needed and upon reaching the property, post signs properly and lawfully. SIGNS 1. Company Philosophy The most effective and inexpensive way to advertise and secure prospect inquiries is the use of signs. The Firm supplies standard FOR SALE signs and SOLD signs. 2. Conditions If any of the following are being done improperly, please inform Management: a. Signs must be kept clean and straight. b. Signs are not considered expendable and should be reused, if in good condition. c. Signs must be promptly removed after the sale has been closed or the listing has expired. It is the Secretary's responsibility to notify the sign company when a sign is to be removed. d. No sign, of any kind, may be placed on any property without the owner's permission. 3. Installation The cost of employing a sign company to install and remove the For Sale signs will be paid by the Associate. The listing Associate should attach the sold sign rider after the property is sold. 4. Local Ordinances It is the Associate's responsibility to be aware of all local sign ordinances controlling the placement of signs. The Secretary should be informed of the type of sign required before placement of the installation order. 5. Name Associates are encouraged to attach their name riders to the For Sale signs on their listings. The honor and reward for a job well done or the blame for neglect will then be directed to the deserving Associate by the seller and the neighbors. Associates pay for their own name signs. 6. Special Special signs (By Appointment Only, Pool, For Rent, Lakefront, Owner Financing, FHA Financing, etc.) may be used by the Associate. These signs will be paid for the by the Associate. The Company supplies open house signs. The agent pays for the "sandwich boards" or frames to hold them. 162

163 Management 1. ARBITRATION The Company believes that Associates within the Office, who are involved in brokerage fee controversies can and will settle their differences between themselves in an amicable and equitable manner. Failing this, the Associates should ask Management to recommend a settlement. If that is not acceptable to both, a written request for arbitration should be made. A three Associate panel will be selected (one by each arbitrating Associate and one by Management). The request for arbitration should contain an agreement to accept the decision as final. 2. GOALS When an Associate first becomes associated with the Company, it will be Management's obligation to meet with the Associate and together establish or review yearly goals. 3. MANAGEMENT MEETINGS Management Meetings will be posted yearly. Those who must attend: Officers and Sales Managers. The following completed Management records should be brought to the meetings: Manager's Monthly Associate Activity Report, Manager's Monthly Office Activity Report, and Manager's Monthly Ad Call Activity Report. 4. POLICY AND GUIDELINE MEETINGS From time-to-time, Management may call special meetings for the sole purpose of changing Company policies and guidelines. Those who should attend: Officers, Sales Managers, Office Managers, and Office Representatives. 5.OFFICE REPRESENTATIVES There will be one Associate elected to represent each Office at Policy and Guideline Meetings. Representatives will be elected at the first Sales Meeting of the year. The term will be for one year ending December 31. If the Office Representative leaves the Office, a new representative will be elected at the next scheduled Sales Meeting. It will be the responsibility of the Office Representative to present recommendations from Associates at Policy and Guideline Meetings. 6. OPEN DOOR POLICY No appointment is necessary for you to speak with Management. Do not direct any questions concerning Company policies and guidelines to anyone other than Management. Management goes to great lengths to ensure proper instruction of Office policies and guidelines. Do not listen or adhere to differing Office opinions. 7. THE FINAL WORD If any situations arise that are not specifically covered in this Manual, the Associate should abide by Management's decision. In addition, Management reserves the right to amend, alter or change certain policies and guidelines in this Manual for the betterment of any or all Offices of the Firm. This flexibility will insure Company success. The policy manual will be updated regularly and used consistently. The policy manual is a "guideline" and cannot always cover every situation. Review 163

164 The top agent does not necessarily make the best real estate manager. In fact, they are almost always two very different personality types. Even though the manager need not be a top producer, he or she must be experienced and competent as real estate agent and have the respect of the agents. If the manager is not experienced, educated and competent, he or she would not be fit to direct, advise, train, guide, and support the agents. The most effective form of gaining cooperation that the leader can utilize is working with the agents and providing a good example. Establishing policies and procedures that outline the expectations of the company can help agents and staff members to work with less supervision and more harmony. This also gives the manager more time for mentoring and giving individual attention to help his or her agents succeed. If your agents do not believe that you have the background or experience to lead them, they will not be interested in what you have to say. Without experience in the real estate business, a manager could still collect facts and provide information. But, without knowledge of the business and wisdom from practical experience, information alone can be nearly worthless. The successful manager is able to lead others by recruiting them to their path of thinking. To be effective, the manager should have highly developed communication skills and know how to effectively use body language, voice inflection, and eye contact to show not only an active interest in the agents, but self-confidence as well. Of course, leadership also involves enthusiasm for the real estate profession. As manager, you can bring life to real estate for your agents by having them mentally live your experiences as you share them at sales meetings and goal setting sessions. Leaders have a natural instinct to help people by giving their best advice, searching for answers, inspiring, and truly caring about their agents. They want to help others succeed. The "amiable" manager was quite often a successful agent who wants win approval as manager by trying to please everyone. He or she is usually very trusting and tends to look the other way instead of reprimanding, criticizing or disciplining. Although the manager is friendly, he or she may not be respected as a leader. Rules tend to be overlooked, paperwork can be careless, and the company may lack structure. "The Boss" manager lets you know that he or she "owns the place," he or she "is the boss," and you will "do what I say." Instead of good communication, there is usually a "power trip." "The Boss" is an ineffective leader, often insecure, and has a lack of confidence but tries to makes up for it by being bossy, overbearing and self-important. This manager cannot get the cooperation and respect of the staff, and because he or she uses no tact in handling people, resentment builds and grows. This situation causes poor morale, low retention, and difficulty in recruiting. " Our Leader" manager is confident, motivating, enthusiastic, team spirited, and caring. This is a "people-person" with great communication skills. "Our leader" type is tolerant, but not careless about rules, paperwork, structure, or policies. This manager is respectful and appreciative of everyone's contribution to the company. Rather than "driving" people, he or she "guides" people to make the right choices. "Our leader" creates an environment of high morale and maximum productivity and doesn't boast or brag that "I'm the boss." This leader will instead say, "we are a team." Building and keeping a good reputation is not easy. It requires effort, dedication and commitment. 164

165 According to a Gallop Poll in 1993, real estate agents finished 21 st out of 25 in the ranking for honesty and ethics, but were ranked ahead of car dealers, congressmen and stockbrokers. Once a good reputation is built, the loss of that reputation will impact the company's performance and productivity. Everyone from owners to supervisors to managers, agents and staff hold responsibility for their companies' reputation. The manager can inspire ethical behavior by referring to a written code of ethics, personally abiding by those ethics, and making it clear that any unethical behavior will never be tolerated. Sales meetings should be highly productive, informative and well worth attending. It is also an opportunity to take advantage of the exchange of information on new listings, price changes, and buyer's needs. It is likely that an agent with a qualified buyer will find lots of help from active listing agents at the sales meeting. An agenda should outline the topics to be covered. These should be passed out at the beginning of the meeting, and if an agent misses the meeting, a copy can be placed in his or her mail slot. The agendas should be dated and kept on file in computer, file or binder for future reference, training or updating policies. The more group interaction you have, the more stimulating the meeting will be. Encourage your agents to take part in "brainstorming session" or group discussions. Ask them to role-play, give a demonstration, or share a "real life" example. Who says your sales meeting has to be at the office? Try holding your meeting at different locations once a month. When the weather is nice, it could be held outside in a park, or inside at a donut or coffee shop. The best time to begin writing your next week's agenda is right after your meeting. Anything that comes up in this week's time should be noted and considered for your next meeting. Note any changes in the market, interest rates, technology and of course, ask your agents for input and suggestions. Creating a mission statement that fits your company's ideals is important. If it fits, it will be used as an everyday guide in conducting your business. Your company will work better as a team when everyone feels they had a part in the making of the statement. The mission statements should be short enough to commit to memory. The mission statement should be a balance of practical and emotional ideals. To be taken seriously, the mission statement should be kept direct and simple, truthful, powerful, and realistic. You must believe in your mission statement, or no one else will. "If you don't use it - you lose it!" Make sure everyone in your company has a copy and uses the mission statement in their presentations, sales meetings, and recruiting materials. Most people feel more secure in a work environment where the expectations of their performance and behavior are clear. The purpose of a policy and procedure manual is to avoid misunderstandings, prevent problems, and establish methods of solving problems and/or disputes, before they happen. Your company policy and procedure manual also can be a powerful recruiting and retention tool when used in interviewing, hiring and retaining agents. This is a book that is meant to be changed. As circumstances, laws and your company change, so will your policies. The manual should have remedies for resolving disputes and handling exceptions to the policies, but if too many exceptions occur, the standard should probably be revised. The goal of the policy manual is to cover "most" of the people, "most" of the time. 165

166 ATTENTION: PLEASE TAKE YOUR FINAL EXAM NOW 166