CONNECTICUTRealEstateLicenseExamwww.AudioLearn.com
i | Page TABLE OF CONTENTS Introduction .................................................................................................................................... 1 Chapter 1 - Licensing and License Laws .......................................................................................... 2 History and Purposes of Real Estate License Laws ..................................................................... 3 Federal and State Regulatory Agencies ...................................................................................... 3 Real Estate License Categories .................................................................................................... 5 Licensure Requirements .............................................................................................................. 6 Laws Covering Licensing ............................................................................................................ 10 Becoming a Broker .................................................................................................................... 12 Chapter 1 Quiz 13 Chapter 1 Quiz Answers 15 Chapter 2 - Types of Agents and Agency Relationships 17 Historical Perspective 19 Laws that Govern Authorized Relationships 20 Parties to an Agency .................................................................................................................. 21 Types of Authorized Brokerage Relationships .......................................................................... 25 Forming a Brokerage Relationship ............................................................................................ 33 Changing a Brokerage Relationship .......................................................................................... 34 Termination of Agency .............................................................................................................. 35 Disclosing an Agency Relationship ............................................................................................ 36 Chapter 2 Quiz ........................................................................................................................... 38 Chapter 2 Quiz Answers ............................................................................................................ 40 Chapter 3 - Ethics and Fiduciary Duties ........................................................................................ 42
ii | Page Ethics Overview ......................................................................................................................... 43 Common Forms of Dishonesty .................................................................................................. 45 Ethics and Real Estate ............................................................................................................... 47 Fiduciary Duties ......................................................................................................................... 59 Disciplinary Actions ................................................................................................................... 64 Chapter 3 Quiz ........................................................................................................................... 69 Chapter 3 Quiz Answers ............................................................................................................ 71 Chapter 4 - Contracts 73 Overview 75 Five Contract Requirements 75 Types of General Contracts 77 Seller Contracts 79 Buyer Contracts ......................................................................................................................... 81 Contract Breaches and Remedies ............................................................................................. 82 Chapter 4 Quiz ........................................................................................................................... 87 Chapter 4 Quiz Answers ............................................................................................................ 89 Chapter 5 - Managing the Office................................................................................................... 91 How to Organize a Real Estate Business ................................................................................... 92 Legal Structures for Brokerages ................................................................................................ 92 Real Estate Franchises ............................................................................................................... 93 Brokerage Operations ............................................................................................................... 93 Hiring ......................................................................................................................................... 97 Multiple Listing Service (MLS) ................................................................................................. 101 Reducing Real Estate Liability .................................................................................................. 101
iii | Page Recordkeeping ......................................................................................................................... 102 Chapter 5 Quiz ......................................................................................................................... 105 Chapter 5 Quiz Answers .......................................................................................................... 107 Chapter 6 - Real Estate Concepts ................................................................................................ 109 The Concept of Land ............................................................................................................... 110 The Concept of Improved Land ............................................................................................... 111 The Bundle of Property Rights ................................................................................................ 113 Limitations to Property Rights 114 Chapter 6 Quiz 118 Chapter 6 Quiz Answers 120 Chapter 7 – Real Property Ownership and Interests 122 Three Types of Possessory Interests 124 Four Types of Nonpossessory Estates ..................................................................................... 128 Four Forms of Ownership ........................................................................................................ 130 Future Interests in Property .................................................................................................... 131 Chapter 7 Quiz ......................................................................................................................... 132 Chapter 7 Quiz Answers .......................................................................................................... 134 Chapter 8 - How Real Estate is Transferred ................................................................................ 136 Title vs. Deed ........................................................................................................................... 139 Nine Essential Elements in a Deed .......................................................................................... 140 Types of Deeds ........................................................................................................................ 144 Understanding Legal Descriptions .......................................................................................... 149 Chapter 8 Quiz ......................................................................................................................... 152 Chapter 8 Quiz Answers .......................................................................................................... 154
iv | Page Chapter 9 - Representing the Seller ............................................................................................ 156 Create Your Agency Relationship ............................................................................................ 157 The Listing Agreement ............................................................................................................ 158 Seller Disclosures ..................................................................................................................... 159 Property Inspection ................................................................................................................. 161 Determining the List Price ....................................................................................................... 165 Advertising in Real Estate ........................................................................................................ 168 Earnest Money Deposits 171 Chapter 9 Quiz 172 Chapter 9 Quiz Answers 175 Chapter 10 - Representing the Buyer 177 Buyer Agency Agreement 179 Finding Properties ................................................................................................................... 180 Determining the Purchase Price.............................................................................................. 186 Negotiating Process ................................................................................................................. 186 Preparing the Purchase Agreement ........................................................................................ 187 Other Types of Contracts ........................................................................................................ 198 Performance of Contract ......................................................................................................... 200 Earnest Money Deposits ......................................................................................................... 200 Due Diligence........................................................................................................................... 202 Chapter 10 Quiz ....................................................................................................................... 212 Chapter 10 Quiz Answers ........................................................................................................ 214 Chapter 11 - Financing ................................................................................................................ 216 Sources of Financing................................................................................................................ 219
v | Page Professionals Involved in Financing Real Estate ..................................................................... 221 The Pieces of the Mortgage Puzzle ......................................................................................... 223 Types of Real Estate Loans ...................................................................................................... 227 The Secondary Mortgage Market ........................................................................................... 230 Chapter 11 Quiz ....................................................................................................................... 232 Chapter 11 Quiz Answers ........................................................................................................ 234 Chapter 12 - The Closing ............................................................................................................. 236 Preparing the Seller 237 Preparing the Buyer 239 The Closing Process 241 Key Closing Documents 243 Getting Paid Your Commission 253 Chapter 12 Quiz ....................................................................................................................... 255 Chapter 12 Quiz Answers ........................................................................................................ 257 Chapter 13 - Real Estate Appraisal ............................................................................................. 259 Introduction to Real Estate Appraisal ..................................................................................... 261 Licensing Requirements .......................................................................................................... 261 A Comparative Market Analysis (CMA) vs The Appraisal........................................................ 263 The Principles of Value ............................................................................................................ 264 The Appraisal Process ............................................................................................................. 267 Chapter 13 Quiz ....................................................................................................................... 274 Chapter 13 Quiz Answers ........................................................................................................ 276 Chapter 14 – Property Management .......................................................................................... 278 Property Manager’s Responsibilities ...................................................................................... 279
vi | Page Landlord and Tenant Rights and Responsibilities ................................................................... 281 Leases and Disclosures ............................................................................................................ 283 Chapter 14 Quiz ....................................................................................................................... 287 Chapter 14 Quiz Answers ........................................................................................................ 289 Chapter 15 – Connecticut Specific State Requirements ............................................................. 291 State Regulatory Agencies....................................................................................................... 291 State Specific Laws And Acts Governing Real Estate .............................................................. 293 Chapter 15 – Connecticut Quiz 294 Connecticut Quiz Answers 300 Chapter 16 – Practice Test 303 Chapter 16 – Practice Test Answers 324
A common complaint of students is that once they enter the real estate profession, their training did little to prepare them for the reality of being a real estate salesperson. They were stuffed full of book knowledge but knew little of the practical side of the profession. Well, no more. We have worked hard to combine a solid education of the laws governing the real estate profession, but we have also endeavored to teach you the underlying principles behind the laws. We have also taken your education one step further by walking you through the whole buy-and-sell transaction, both as the listing agent and as the selling agent. After you have completed this course, you be equipped to pass the state exam on the first try. Then once you get your license, you will be more confident as you start to work with a broker. You will know what to expect and how the process works. We will even walk you through how to fill out some of the main forms. Now, the real estate exam is going to have two parts. There is the national test which focuses on federal laws and regulations, ethical requirements, real estate concepts, and vocabulary. Then there is the state portion. This section is going to focus on the local licensing authority and their respective commissions and departments. You will also need to know some local law. While it is not practical to include all that information on each state, we have picked the top ten states which are Arizona, California, Colorado, Florida, Illinois, New York, North Carolina, South Carolina, Texas, and Virginia. If you live in one of those states, then you just lucked out with a bonus education. If not, we encourage you to look over these state sections. It will show you what information to look up to learn more about your state’s licensing laws and requirements.Howabout
INTRODUCTION
we get started with the basics and take it step-by-step from there? Good, let’s begin.
This guide has been designed to help you to pass the exam to obtain your real estate license. But we wanted to do more than just help you pass a test. We want to make sure that you succeed as a real estate agent.
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License: a privilege granted by the state to operate as a real estate broker, broker associate, or sales Mutualassociate.Recognition: a transactional agreement between two states that provides for the recognition of each other's real estate license education.
Registration: authorization by the state to place an applicant on the register, or record, of officially recognized individuals and businesses. Sales Associate: anyone who holds a real estate license and values, auctions, sells, exchanges, buys, or rents for compensation under the direction, control, or management of a broker or owner/developer. (Also called a real estate agent salesperson.)
CHAPTER 1 -
DEFINITION OF KEY TERMS: Broker: a person or business entity who, with more education than an agent, is licensed as a broker to perform real estate services for others for compensation. Broker Associate: a person qualified to be issued a license as a broker but operates as a sales associate in the employ of another. (Also called an associate broker.) Caveat Emptor: “let the buyer beware;” a principle in commerce: without a warranty the buyer takes the Compensation:risk. anything of value or a valuable consideration, directly or indirectly paid, promised, or expected to be paid or received.
Realtor: (1) a person who acts as an agent for the sale and purchase of buildings and land; a real estate agent; (2) a real estate agent who is a member of the National Association of RealREALTORS®.EstateServices: real estate activities involving compensation for performing the activities for Realanother.Property: the interests, benefits, and rights inherent in the ownership of real estate.
OBJECTIVE: The objective of this chapter is to introduce you to the real estate profession, its laws, and licensing requirements. We will discuss the history of real estate license laws and why they matter. We will also go over the steps needed to become a licensed salesperson.
LICENSING AND LICENSE LAWS
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CONSUMER PROTECTION
CAVEAT EMPTOR
When a seller is only focused on selling a property at all costs, you have a situation of Caveat Emptor Caveat Emptor is a Latin expression meaning “let the buyer beware.” It means that the buyer is on his or her own and the seller cannot be relied upon to honestly disclose the true condition of the property. Well, governments saw how this posed a risk to buyers and stepped in to remedy the situation. They created the intermediary sales agent to help protect buyers. Governments created regulations that required sellers to complete mandatory disclosure forms. And they trained licensed agents to work on behalf of the buyer to protect their interests from the seller
As long as there has been land, there have been people selling the land. As long as there have been people selling the land, there has been cheats, crooks, and con artists. This has given genuine real estate agents a bad rap. They have been thrown into the same category as shady used car salesmen or pushy loan sharks that will do anything to make the sale happen.
While licensed real estate agents are trained to protect buyers and sellers from each other, it was also necessary to protect the public from unethical and dishonest agents.. Thus, governmental regulatory organizations were set up to oversee and mandate the actions and activities of the real estate profession.
FEDERAL AND STATE REGULATORY AGENCIES
Licensing and regulation of real estate agents are handled at the state level. Every state has a department that licenses and regulates all the businesses and professionals which is under the executive branch of the Governor. These state agencies wield a great deal of power.
3 | Page HISTORY AND PURPOSES OF REAL ESTATE LICENSE LAWS
Real estate licensing laws and regulations have been established to help make sure that each licensed agent is trained in their field and upholds a high ethical standard. This has gone a long way to turning the real estate sector into a field of trusted professionals. One primary reason why it was necessary to train and license all real estate agents was Caveat Emptor.
In addition to the state requirements, the Feds have passed a minimum of twenty-three federal laws that affect the residential real estate market. You have probably heard of the
4 | Page They can levy fines, administer disciplinary actions or even suspend or revoke a license. STATE REAL ESTATE REGULATORY AGENCIES KansasIowaIndianaIllinoisIdahoHawaiiGeorgiaFDDelawareConnecticutColoradoCaliforniaArkansasArizonaAlaskaAlabamaistrictofColumbialorida NorthNewNewNewNewNevadaNebraMontanaMissouriMississippiMinnesotaMichiganMassachusettsMarylandMaineLouisianaKentuckyskaHampshireJerseyMexicoYorkCarolina North Dakota WyomingWisconsinWestWashingtonVirginiVermontUtahTexasTennesseeSouthSouthRhodePennsylvaniaOregonOklahomaOhioIslandCarolinaDakotaaVirginia
When you are ready to take your state licensing exam, you will have to know the details about your state regulatory agencies. This will include knowing the names of each agency, individual level of authority, and licensing requirements.
There are three levels of licensed real estate agents: the Sales Associate, the Broker, and the Broker Associate.
SALES ASSOCIATE A real estate sales associate is anyone who holds a real estate license and values, auctions, sells, exchanges, buys, or rents real estate for compensation. A sales associate must work under the direction of a state licensed broker. Sales associates are also called sales agents.
A sales associate license is not only limited to individuals; they can include corporations or limited liability companies. A sales associate, however, cannot be registered or licensed as a general partner, member, manager, officer, or director of a brokerage firm.
A real estate broker is anyone who has taken their education beyond the agent level and holds a broker's real estate license and values, auctions, sells, exchanges, buys, or rents real estate for compensation. A real estate broker can be an individual, a partnership, a corporation, a limited liability partnership, or a limited liability company. A broker can also act as a member, officer, general partner or director. A broker must also license each entity or business that is involved in real estate while they, as an individual, are also licensed. A broker can work individually or manage other sales associates or associate brokers.
5 | Page Dodd-Frank Act or the Fair Housing Act. Well, these are just a few of the legislative acts that you will need to become familiar with. But don’t worry, we’re going to walk you through all the really important ones so you know exactly what you need to do to become a great agent.
BROKER
REAL ESTATE LICENSE CATEGORIES
Let’s move on to the three levels of licensing that allows agents to conduct real estate transactions as a matter of business.
LICENSURE REQUIREMENTS
CONFUSING WORD PAIRS
All applicants must possess the minimum of a high school diploma or a GED equivalent They must also complete and pass the state approved pre-license course for either the sales associate or the broker license. Some states allow exemptions to this educational requirement if the applicant is already licensed with the state bar association, have taken college courses which are equivalent to the state approved pre license course, or hold a four year degree in real estate. EXPERIENCE
BROKER ASSOCIATE A broker associate is anyone who is qualified to be issued a license as a broker, but who operates as a sales associate in the employ of another broker. They are also called associate brokers.A broker associate can be an individual, a professional corporation, or a limited liability company. Broker associates must also work under a broker like a sales associate. Because of this, a broker associate cannot be registered or licensed as a general partner, member, manager, officer, or director of a brokerage firm.
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BROKER: a real estate sales associate is anyone who holds a real estate license and values, auctions, sells, exchanges, buys, or rents real estate for compensation.
REALTOR: a licensed real estate professional who is a member of the National Association of Realtors. The public often uses the terms real estate agent, broker and realtor interchangeably.
Applicants for the sales associate license do not have to have any real estate experience. For a sales associate to advance to a broker’s license, however, she must have at least twenty
There are some basic licensure requirements which must be met before the applicant can take the state licensing exam. AGE All licensees must be at least eighteen (18) years old. EDUCATION
All applicants for a real estate license must have a United States Social Security number, but they do not have to be a United States citizen CHARACTER
MUTUAL RECOGNITION
The applicant must be honest, truthful, trustworthy, of good character, and have a good reputation for fair dealing. COMPETENCE
The applicant must also be competent and qualified to manage real estate transactions and be able to conduct negotiations with anyone whom the applicant has a relationship of trust and confidence.
7 | Page four (24) months of real estate experience within a five (5) year period. She must also have been licensed as a sales associate and worked with a broker or governmental agency for at least two (2) years out of the previous five (5).
If a sales agent is licensed but wants to work in another state, she may be able to apply the education and experience acquired in the other state towards obtaining an equivalent license in the new state. This is called mutual recognition. The state will require, however, that the licensee pass their state exam.
GETTING LICENSED
Once you have completed the educational requirements, there are a few more steps you will need to take before you can become a licensed real estate agent.
NATIONALITY
REGISTRATION AND APPLICATION
After you complete your pre licensure course and pass the course’s final exam, you will be required to submit an application to obtain a real estate salesperson license with the state. The state will require that you meet all the application requirements.
After your state application is approved, you will need to take and pass the state licensing exam. This is the scariest part of the licensing processed, but don’t worry, we’re going to help you pass the exam on the first try.
INACTIVE STATUS
Now, once you get licensed, you will need to maintain an active status. There are two levels of an inactive license.
Once you have passed the state exam, the next step is to activate your license.
A VOLUNTARILY INACTIVE LICENSE is a status given to licensees who are not actively practicing real estate and are not affiliated with a broker. A real estate salesperson cannot perform a real estate transaction unless they are working under the guidance of a broker. If you want to get your license, but you do not plan on working in the real estate business for a while, you can place your license in the voluntarily inactive status. This must be registered with the state. If you keep up with your continuing education and renewal fees, you will not have to repeat your pre licensure education when you reactivate your license.
8 | Page STATE EXAMINATION
ACTIVATE THE LICENSE
An INVOLUNTARILY INACTIVE LICENSE classification occurs if the license is not renewed at the end of the license period. Usually, this happens when an agent fails to complete their continuing education on time. If too much time passes before you renew your license, you could lose your license altogether and then must go through all the pre licensure education again.
Most states will have you do this online. Your real estate license will not be valid until it has been activated – like when you receive a new credit card in the mail.
· Absenteeism: If the applicant was absent from class more than ten (10) percent of the time then she could be denied.
Each state will require that their licensees receive continuing education. Some states require a certain number of classroom hours each year, and others will require a cumulative total during the licensure period. You will also have to pay a renewal fee.
· Guilty of Wrong Conduct: If an unlicensed applicant has engaged in and was found guilty of wrong conduct, a license may be denied.
CONTINUING EDUCATION
· Practicing Without a License: If an unlicensed applicant has performed actions or duties of a licensed real estate agent within the past year, the applicant may be denied a license because she illegally worked in the real estate profession.
· Under Investigation: If an applicant is under investigation in any state or foreign country, the application will be denied until the investigation is complete, and any disciplinary proceedings have been terminated. DID YOU KNOW? Many real estate wholesalers are unlicensed. Their business is based on the premise that they are selling a contract and not real estate. Many states are cracking down and prosecuting unlicensed wholesalers for practicing real estate without a license.
REASONS A LICENSE COULD BE DENIED
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Just because an individual takes the state approved classes and passes the final exam, which is not an absolute guarantee that she can obtain a real estate license. There are some reasons why a license could be denied:
· Prior License Denied, Revoked or Suspended: If the applicant has been denied registration of a license for real estate or any related profession or the license was revoked or suspended, an applicant may be denied until she meets the state requirements.
It is illegal to become involved in a real estate transaction when the licensee knows they are not competent or qualified to perform it.
The real estate division within each state is responsible for creating specific laws and requirements that every licensed real estate agent is subject to follow. Let’s take a moment and review the underlying principles behind these laws.
· It is illegal to share a commission or pay compensation to an unlicensed person for any services that would require that person to have a real estate license. That would include the referral of real estate business, clients, prospects, and customers.
It is illegal to work as a sales associate or a broker without having a valid and active license.
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· It is a license violation if the real estate agent fails to immediately place in escrow any monies that have been entrusted to the agent while practicing real estate.
It is illegal for a broker to operate under an unregistered or unlicensed trade name, partnership, or corporation.
It is illegal to work as a broker if you only have a sales associate license.
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· It is a license violation if a real estate agent renders an opinion on the salability of the title of a property without first consulting with a licensed attorney.
It is illegal to attempt to obtain or renew a license by bribery or misrepresentation.
It is illegal to practice real estate that is beyond what is permitted under their license level.
· It is a license violation if an agent fails to report in writing to their state board or department that the licensee has been convicted or found guilty of a crime in any jurisdiction.
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It is illegal for a sales associate to collect money related to a real estate transaction unless it is in the name of the broker or the name of the licensed business.
· It is illegal for a broker to employ a sales associate who is not licensed.
10 | Page LAWS COVERING LICENSING
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It is illegal to work in the real estate profession in a way that is fraudulent, deceptive, untrue, or misleading.
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If a licensee is found guilty of any of these aforementioned laws and regulations or any other ones that have been set by their state, the licensing authority has the right to deny the renewal of a license; place the license on probation; suspend the license for up to ten (10) years; revoke the license entirely; or even impose a large fine on the licensee. This means that all licensees need to be familiar with all the individual state laws that govern the real estate profession and follow them to the letter.
· It is a license violation to exercise influence on a client for financial gain for the licensee or a third party.
DISCIPLINARY ACTION
12 | Page BECOMING A BROKER
If you are planning on making real estate your career, then I would like to encourage you to consider getting your broker’s license. It is going to mean that you will need more experience and more education, but I believe that it is well worth the effort. Let’s go over some of the main reasons why getting your broker’s license is a good business move.
If you get your broker’s license, this also means that you could have other salespersons working underneath you and building up your business. Just as your broker is responsible for you a licensed agent, if you become a broker, you will be liable for the activities of the members of your firm.
The primary reason why you should advance from being a licensed sales agent to becoming a real estate broker is the fact that you can work for yourself. You could throw out a shingle and start your own real estate business. There would be no more split commissions or desk fees. You will run the show. Another reason is that you will be more recognized as a real estate professional. Brokers have more experience and education. Hence, they are trusted more by the public. You can take on larger clients as well as commercial listings. The downside is that you will not have a broker to consult with. You will also be one hundred percent (100%) responsible for your own actions. You will not be able to hide behind the skirts of a managing broker. All in all, I would say that the benefits of getting your broker’s license outweigh the disadvantages. Even if you decide to stay with your original real estate firm, having a broker’s license is still advantageous.
WHY BECOME A BROKER
SPONSORING BROKER LIABILITY
13 | Page CHAPTER 1 QUIZ Print out this ten-question quiz and then select the most appropriate answer from the choices given. The answers are provided on the next page. 1. What does caveat emptor mean? a. A forewarning to leaders. b. Let the buyer beware. c. Let the seller be cautious d. Let the agent work hard. 2. What are the duties of the state’s real estate department? a. To license real estate agents. b. To regulate the profession. c. To administer disciplinary actions. d. All of the above. 3. What are the three levels of real estate licensing? a. Sales Associate, Broker, Broker Associate b. Sales Broker, Broker Associate, Sales Agent c. Sales Associate, Associate Agent, Broker d. Broker Agent, Sales Agent, Broker 4. True or False. All real estate applicants must be United States citizens? a. True b. False 5. A license must be at least ______ years old. a. 17 b. 18 c. 21 d. 25
9. True or False. It is legal to work under a real estate broker if you are not licensed.
b. A licensee has not closed on a sale within the past 12 months.
c. The agent’s broker has fired the licensed salesperson.
7. An Involuntary Inactive License classification occurs if…
a. A licensee does not renew their license at the end of the license period.
8. A voluntarily inactive license classification occurs if… a. A licensee does not renew their license at the end of the license period.
d. The licensee is unemployed.
b. The licensee has not completed their continuing education at the end of the license period.
a. True b. False 10. True or False. It is illegal to share a commission or pay compensation to an unlicensed person for any services that would require that person to have a real estate license. a. True b. False
14 | Page 6. An agreement between two states that provides for the recognition of each other's real estate license education is called _________________________. a. license sharing b. mutual respect c. mutual recognition d. licensing recognition
c. The licensee is not affiliated with a broker, developer or real estate company.
d. None of the above.
5. A license must be at least ______ years old. b. 18 6. An agreement between two states that provides for the recognition of each other's real estate license education is called _________________________. c. mutual recognition
c. The licensee is not affiliated with a broker, developer or real estate company.
7. An Involuntary Inactive License classification occurs if…
b. False
b. False – An applicant must have a social security number but does not have to be a U.S. citizen.
b. Let the buyer beware. – This is a Latin-based principle in commerce that means without a warranty the buyer takes the risk.
8. A voluntarily inactive license classification occurs if…
9. True or False. It is legal to work under a real estate broker if you are not licensed.
a. Sales Associate, Broker, Broker Associate – A sales associate can also be called a sales agent.
d. All of the above. – The duties of the state’s real estate department includes licensing, regulating and administering disciplinary action.
4. True or False. All real estate applicants must be United States citizens?
1. What does caveat emptor mean?
3. What are the three levels of real estate licensing?
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2. What are the duties of the state’s real estate department?
b. A licensee does not renew her license at the end of the license period.
16 | Page 10. True or False. It is illegal to share a commission or pay compensation to an unlicensed person for any services that would require that person to have a real estate license. c. True
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