1 chapter one: introduction to ethics

CHAPTER ONE: INTRODUCTION TO ETHICS ...................................................... 2
THE IMPORTANCE OF ETHICS ........................................................................................... 3
GUIDING PRINCIPALS ....................................................................................................... 4
CHAPTER TWO: ETHICAL ISSUES IN REAL ESTATE ........................................ 5
FINANCES......................................................................................................................... 5
Escrow Accounts......................................................................................................... 5
Commissions ............................................................................................................... 6
Commingling............................................................................................................... 6
Reporting..................................................................................................................... 6
SUPERVISION ................................................................................................................... 6
ADVERTISING ................................................................................................................... 7
DISCLOSURE .................................................................................................................... 9
Disclosure of Interest.................................................................................................. 9
Disclosure of Brokerage Relationships ...................................................................... 9
Seller’s Agent.......................................................................................................... 9
Buyer’s Agent ....................................................................................................... 10
Dual Agency ......................................................................................................... 10
Designated Agency ............................................................................................... 10
Avoiding Conflicts of Interest ................................................................................... 12
Disclosure of Material Adverse Facts ...................................................................... 12
PROFESSIONALISM ......................................................................................................... 12
Competence............................................................................................................... 12
Best Interests of Others............................................................................................. 13
Honesty ..................................................................................................................... 14
MAKING A COMPLAINT .................................................................................................. 15
DEPT OF PROF AND OCCUPATIONAL RESOURCES COMPLAINT FORM …………..……..19
VIRGINIA FAIR HOUSING COMPLAINT FORM…………………………………………..23
CHAPTER THREE: INDUSTRY TRENDS................................................................ 23
RENTAL VACANCY RATES ............................................................................................. 23
HOMEOWNER VACANCY RATES..................................................................................... 23
HOMEOWNERSHIP RATES ............................................................................................... 23
HOUSING UNITS ............................................................................................................. 24
HOMEOWNERSHIP BY AGE ............................................................................................. 25
HOMEOWNERSHIP BY RACE AND ETHNICITY ................................................................. 25
MORTGAGE RATES ........................................................................................................ 27
SALES OF HOMES ........................................................................................................... 27
PRICE OF HOMES ............................................................................................................ 27
GDP............................................................................................................................... 28
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Introduction
Ethics are a crucial component of a licensee’s professional success. Ethical behavior is
an obligation the licensee has toward clients, customers, coworkers, competition,
regulators and the public. The first part of this course provides a look at important
ethical responsibilities of the licensee.
The second part of the course focuses on industry trends. Current housing statistics are
reviewed and economic and demographic trends that affect housing are cited.
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Chapter One: Introduction to Ethics
Ethics are a set of moral values and principles that provide a measure to determine the
“rightness” or “wrongness” of actions. The ethics of the real estate licensee govern the
licensee’s actions toward clients, customers, coworkers, the competition, regulators, and
the public at large. All these people can be helped or harmed by a licensee’s actions. It
is important that the licensee perform all his duties with care and professionalism.
The Importance of Ethics
The licensee has many important duties that must be fulfilled toward a client. These
include proper and clear disclosure. The licensee must disclose any conflicts of interest
he has regarding a real estate transaction, the brokerage relationship the licensee has
with parties involved in the real estate transaction, and any material adverse facts the
licensee knows about the property to the parties involved.
Fair Advertising
Another important ethical responsibility of the licensee is to adhere to fair advertising
practices. The licensee must disclose certain items on each advertisement piece,
whether, print, media or web advertising. The licensee must also refrain from improper
practices, such as bait and switch tactics, where properties are advertised at a lower
price or with better features than the actual property being offered.
The licensee advertised condominiums as “starting at $90,000,” to attract more
customers, even though all available units are priced at a minimum of $110,000. This
practice:
a. is an acceptable real estate advertising practice
b. should be followed by all licensees, since it has been proven to be successful in
bringing in buyers
c. is a “bait and switch” tactic, which is prohibited under Virginia real estate laws
d. is acceptable as long as a unit has been sold for $90,000 in the last twelve months.
Answer C
Clarity and Fair Dealing
Real estate transactions are very complicated, and while the licensee is normally well
versed in all a real estate transaction’s intricacies, customers and clients are not. The
licensee must not take advantage of the non-licensee’s lack of knowledge in any way
during a real estate transaction. The licensee cannot misrepresent or omit information
relevant to the transaction. The licensee must make a reasonable effort to ensure the
client understands the ramifications of the decisions he is making.
Proper Funds Management
Real estate involves large monetary transactions. A purchase or sale of real estate is
often the largest financial transaction an individual is ever involved in. The licensee has
an obligation to handle client’s funds in accordance with the standards and regulations
set forth by the Real Estate Board and also in accordance with his responsibilities as a
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fiduciary. He must deposit the funds in a timely fashion, must keep accurate records
and must not mishandle money belonging to clients in any way.
Professionalism
In all aspects of his duties, the agent must act with professionalism. This means that he
must not act with unworthiness nor incompetence. He must tender offers as soon as
possible after receiving them. He must not have any improper dealings, such as not
disclosing interests in a transaction. He must not make false statements or misrepresent
information to clients or customers.
Trust
Building trust is an important aspect of any profession involving sales. Without trust,
the licensee will never establish a good working relationship with clients, customers,
coworkers or competitors.
Ethical behavior helps the licensee build trusting
relationships, since those who deal with him will know that he can be relied upon.
Guiding Principals
Some real estate associations that have adopted ethical standards that their members
agree to follow. The National Association of Realtors® has adopted a Code of Ethics
and Standards of Practice for Realtors® which includes Duties to Clients and Customers,
Duties to the Public, and Duties to Realtors®. This Code of Ethics can be reviewed at
their website: http://www.realtor.org.
The primary ethical principle that encompasses most, if not all, real estate licensees’
duties and responsibilities to clients, customers and competitors is the golden rule, “Do
unto others as you would have them do unto you.” By following this principal, the
licensee will avoid most unethical behaviors.
Which principle best sums up a licensee’s ethical responsibilities?
a. Look out for number 1.
b. Do unto others as you would have them do unto you
c. Buyer beware!
d. Do it to them before they do it to you
Answer B
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Chapter Two: Ethical Issues in Real Estate
Real estate transactions can pose some unique ethical issues, and others that are
common to many professions, especially sales professions. The licensee who meets the
regulatory and legal requirements of his job will avoid most legal troubles. The licensee
who holds himself to an even higher standard than the minimum standards required by
law will truly meet the professional obligations to those with whom he works.
Finances
Real estate transactions involve large sums of money. The fact that so much money is
involved can lead to pressure on individuals involved in the transaction that can result
in unethical behavior. For example, a licensee may not provide adverse material
information to a client or customer in order that the sale goes through, and the licensee
bags a commission. Or, the licensee will turn a blind eye to, or even participate in, a
scheme to falsely inflate the value of a property so that it may be sold at a large profit.
Or, the licensee may not disclose conflicts of interest in the transaction so that he can
pocket more of the commission and profit without others in the transaction knowing.
Escrow Accounts
Licensees must properly handle money that they hold on behalf of a client. There are
specific rules in Virginia that govern the handling of this money. Money, such as
earnest money, down payments, money received upon final settlement, security
deposits and rental payments, must be deposited into an escrow account, unless all the
parties to the transaction agree otherwise. The escrow account must be labeled as an
escrow account, as must all checks and bank statements of the account. The escrow
account must be in a federally insured depository in Virginia. Earnest money and
down payments must be placed in the escrow account by the end of the fifth business
day after the ratification of a purchase contract, unless all parties agree otherwise.
The real estate broker may place the earnest money he received from the purchaser in:
a. his savings account
b. his checking account in a federally insured depository in Virginia
c. his mutual fund account
d. the firm’s escrow account
Answer D
The balance in the escrow account must be sufficient to account for the funds
designated to be held. There may be funds in the escrow account that will ultimately
belong to the licensee. These funds must be accounted for separately in the escrow
account records. The funds may not be disbursed directly to the licensee, but must be
withdrawn through a check made out to the firm when the funds become due to the
licensee. Such money may only be withdrawn at intervals of not more than six months.
If a purchase transaction is not consummated, the funds must be held in escrow until all
the principals to the transaction have agreed in writing as to their disposition, or a court
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of competent jurisdiction orders the disbursement of funds, or the broker can pay the
funds to the principal to the transaction who is entitled to them in accordance with the
clear and explicit terms of the contract that established the deposit.
Commissions
The licensee is not entitled to any part of an earnest money deposit or other money paid
to the licensee in connection with a purchase real estate transaction as part of the
licensee’s commission until the transaction has been consummated, unless otherwise
agreed to in writing by all parties to the transaction. Likewise, a licensee is not entitled
to any part of the security deposit or any other money paid to the licensee in connection
with a real estate lease as part of the licensee’s commission, except in accordance with
the terms of the lease or the property management agreement, as applicable.
Commingling
A licensee may not commingle the funds of any person with his own funds, or those of
his corporation, firm or association.
Reporting
A principal broker must report to the Real Estate Board, within three business days,
instances where the broker reasonably believes the improper conduct of a licensee has
caused noncompliance with the money handling regulations.
Supervision
Another aspect of the licensee’s profession that can give opportunity for unethical
choices is the fact that many licensees are not closely supervised. Many are
independent contractors, and even those who are employees of a firm do much of their
work away from the office and close supervision. This is one reason why licensees are
called to high standards and are required to take an examination and regular
continuing education by the state in order to remain licensed.
Adequate Supervision
The Real Estate Board regulations state that a supervising broker must exercise
reasonable and adequate supervision of the provision of real estate brokerage services
by associate brokers and salespersons assigned to the branch office. In considering
whether adequate supervision is being given, the following factors are weighed:
1. The availability of the supervising broker to all licensees under the supervision of
the broker to review and discuss contract provisions, brokerage agreement
provisions and licensing.
2. The availability of training and written procedures and policies which provide,
without limitation, clear guidance in the following areas:
a. Proper handling of escrow deposits;
b. Compliance with federal and state fair housing laws and regulations if the
firm engages in residential brokerage, residential leasing, or residential
property management
c. Advertising;
d. Negotiating and drafting of contracts, leases and brokerage agreements;
e. Use of unlicensed individuals
f. Agency relationships
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g. Distribution of information on new or changed statutory or regulatory
requirements
h. Disclosure of matters relating to the condition of the property
i. Such other matters as necessary to assure the competence of licensees to
comply with this chapter and Chapter 21 (§ 54.1-2100 et seq.) of Title 54.1
of the Code of Virginia
A supervising broker is responsible for providing supervision, but this does not mean
that the licensee is exempt from regulatory discipline or other penalties if the licensee
does not abide by the laws, regulations and accepted standards of the licensee’s
profession. A supervisor may be held solely responsible for breaches of duties of a
licensee in some cases, both the supervisor and licensee may be held responsible for
wrongdoing in other cases, or a licensee may be held solely responsible for his actions,
depending on the facts of the case.
The licensee should follow the policies and procedures established by the firm for
which he works, and go to the supervising broker for assistance on contracts,
advertising, agency agreements and in any other area that the licensee needs help that
the supervisor can provide. The licensee should also understand and abide by the laws
and regulations that apply to licensees, in order to avoid unethical behavior.
The licensee is not sure how to write up the purchase offer for a sale contingent on the
sale of two other properties owned by the buyer. The licensee should:
a. tell the buyer to find another agent
b. go to the supervising broker for help in writing the offer
c. write up the offer as best as he can; any loose ends can be tied up later
Answer B
Advertising
Proper advertising methods must be followed by licensees. A licensee must advertise a
property’s features accurately, and not knowingly misrepresent any of a property’s
features.
Specific requirements found in the Board Regulations pertaining to advertising include
that all advertising must be under the direct supervision of the principal broker or
supervising broker and be in the name of the firm. The firm’s licensed name must be
clearly and legibly displayed on all advertising.
Disclosure
Online advertising has special rules pertaining to disclosure. Disclosure for online
advertising means (i) advertising that contains the firm’s licensed name, the city and state in
which the firm’s main office is located and the jurisdiction in which the firm holds a license or
(ii) advertising that contains the licensee name, the name of the firm with which the licensee is
active, the city and state in which the licensee’s office is located and the jurisdiction in which the
licensee holds a license. Disclosure for advertising other than online advertising means (i)
advertising by the firm that contains the firm’s licensed name and the firm’s address or (ii)
advertising by an affiliated licensee that contains the licensee’s name, the name of the firm with
which the licensee is active and the firm’s address.
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Online Advertising
All online advertising that can be viewed as a separate unit, as in web pages and email
messages, must follow these disclosure rules:
• Web pages owned or content-controlled by a firm or licensee must include
disclosure or a link to disclosure
• E-mails, newsgroups, discussion lists and bulletin boards must include
disclosure at the beginning or end of each message.
• Instant messages do not require disclosure as long as the licensee provides the
disclosures through another format prior to offering or offering to provide
licensed services
• Prior to providing or offering to provide licensed services during a chat session,
disclosure must be made. Or, disclosure may be made through the same web
page that contains the chat session if the licensee controls the website hosting the
chat session.
• In Voice Over Net, disclosure must be made prior to advertising or disclosure
text must be visible on the same web page that contains the VON session.
• Banner ads must include a link to disclosure, unless the ad contains the
disclosure
The licensee establishes a web page that advertises his services and several pieces of
property that he has listed. The web page:
a. does not have to include any disclosure
b. must only include disclosure if selling prices of homes are included
c. must have disclosure included in a banner ad in the web page
d. must include disclosure or a link to disclosure
Answer D
Prohibited Advertising
Prohibited advertising activities include
• Implying that a property listed and advertised by a licensee’s firm is for sale,
exchange, rent or lease by the owner or by an unlicensed person
• Failing to include a notice that the owner is a real estate licensee if the licensee
owns or has any ownership interest in a property advertised and is not using the
services of a licensed real estate entity
• Failing to include the firm’s licensed name on any sign displayed outside each
place of business
• Failing to obtain the written consent of the seller, landlord, optionor or licensor
prior to advertising a specific identifiable property
• Failing to identify the types of services offered when advertised by general
description a property not listed by the party making the advertisement
Advertising is also subject to fair housing laws. The Fair Housing Act prohibits the
making, printing and publishing of advertisements which state a preference, limitation
or discrimination on the basis of race, color, religion, sex, handicap, familial status or
national origin.
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Disclosure
The licensee has a responsibility to make certain disclosures to clients, besides those
discussed that pertain to advertising. Disclosures must be made concerning any
ownership interest in property involved in a real estate transaction to which the licensee
is a party, concerning brokerage relationships, and concerning material adverse facts.
Disclosure of Interest
If a licensee knows, or should have known, that he, any member of his family, his firm, any
member of his firm, or any entity in which he has an ownership interest, is acquiring or
attempting to acquire real property through purchase or lease and the licensee is a party to the
transaction, the licensee must disclose that information to the owner in writing in the offer to
purchase or lease.
A licensee selling or leasing property in which he has any ownership interest must disclose that
he is a real estate licensee and he has an interest in the property to any purchaser or lessee in the
written offer to purchase, the application, the offer to lease, or the lease, whichever occurs first.
The licensee owns a rental unit that he is now selling. The licensee:
a. must disclose that he has an interest in the property in the written offer to
purchase
b. does not have to disclose that he owns the rental unit
c. must disclose that he has an interest in the property before closing takes place
d. must disclose that he has an interest in the property if he takes a commission on
the sale, but otherwise does not have to disclose any interest
Answer A
Disclosure of Brokerage Relationships
The licensee must disclose whom he represents in a real estate transaction to customers
and clients. Customers and clients need to know who an agent represents so that they
are less likely to be taken advantage of by a licensee who appears to be helping them,
but who actually is representing the interests of the other party in the transaction.
Seller’s Agent
A licensee acting as a seller’s agent must disclose to buyers that he represents the seller
as soon as they have a substantive discussion about a specific property. The disclosure
must be in writing as soon as possible, and no later than when specific real estate
assistance is first provided.
If the seller’s agent is dealing with an actual or prospective unrepresented landlord or
tenant, the agent must disclose to the landlord or tenant his brokerage relationships
with other parties in the transaction. The disclosure must be in writing, and should be
included in the application for the lease or in the lease itself. If the lease does not
include the disclosure, the disclosure must be made in writing no later than at the
signing of the lease.
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Buyer’s Agent
Buyer’s agents must also disclose to sellers that they represent the buyer as soon as they
have a substantive discussion about a specific property. The disclosure must also be in
writing as soon as possible, and no later than when specific real estate assistance is first
provided.
Dual Agency
If the licensee is representing both the buyer and seller, this is known as dual agency.
The licensee must obtain the written consent of all clients who are parties in the
transaction at the earliest practical time. The disclosure must be given to and consent
obtained from the buyer no later than the time an offer to purchase is presented to the
licensee and to the seller no later than the time the offer to purchase is presented to the
seller.
Designated Agency
Designated agency situations occur when a broker in the same firm as a seller’s agent or
buyer’s agent is designated to represent the other party in the transaction so that the
same licensee is not representing both parties. The same disclosure rules that apply to
dual agency apply to designated agency situations.
The licensee represents both the buyer and seller in a real estate transaction. Written
consent to represent both parties must be obtained by:
a. the time a counter offer is made
b. the earliest practical time
c. closing
d. settlement
Answer B
The following disclosure may be used to disclose buyer or seller agency relationships:
DISCLOSURE OF BROKERAGE RELATIONSHIP
The undersigned do hereby acknowledge disclosure that:
The licensee ___________________________________
Name of Firm __________________________________
represents the following party in a real estate transaction:
_____________________________ Seller(s) or
_____________________________Buyer(s)
_____________________________ Landlord(s) or
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______________________________ Tenant(s)
Date ____________________
Name____________________________________
Date ____________________
Name____________________________________
Designated or dual agency relationships may be disclosed using the following format:
DISCLOSURE OF DUAL REPRESENTATION
The undersigned do hereby acknowledge disclosure that:
The licensee ____________________________________________________
(Name of Broker, Firm or Salesperson as applicable)
represents more than one party in this real estate transaction as indicated below:
____________________________________________________ Seller(s) and Buyer(s)
_______________________________________________ Landlord(s) and Tenant(s).
The undersigned understands that the foregoing dual representative may not disclose
to either client or such client's designated representative any information that has been
given to the dual representative by the other client within the confidence and trust of
the brokerage relationship except for that information which is otherwise required or
permitted by Article 3 (§ 54.1-2130 et seq.) of Chapter 21 of Title 54.1 of the Code of
Virginia to be disclosed. The undersigned by signing this notice do hereby acknowledge
their informed consent to the disclosed dual representation by the licensee.
______________________
Date
________________________________________
Name (One Party)
______________________
Date
________________________________________
Name (One Party)
______________________
Date
________________________________________
Name (Other Party)
______________________
Date
________________________________________
Name (Other Party)
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Avoiding Conflicts of Interest
A licensee may not act for more than one client without first obtaining the written
consent of all clients.
Disclosure of Material Adverse Facts
The licensee also has the responsibility to disclose material adverse facts to all parties of
the transaction. For example, if the licensee knows that there is a lien on a property he
represents, the licensee must disclose this information to the parties to the transaction.
Professionalism
Ethical behavior aims at the highest standards of professionalism. A professional is fair,
honest, competent, takes due care and makes no false statements or misrepresentations.
Competence
A licensee must act competently. This means that the licensee must execute his duties
accurately, in a timely manner, clearly and fairly. The licensee should understand any
real estate transaction in which he represents a client, and if the licensee is not
competent to handle a certain type of transaction, the licensee should forgo the
business. For example, a licensee who is competent in residential sales should not
accept a commercial real estate assignment until he has sufficient training and
understanding to do so.
Competence also involves not answering questions until the licensee has sufficient
information to answer them accurately. For example, if the licensee is asked a question
about the property and the licensee is unsure of the correct answer, the licensee should
answer, “I don’t know. I’ll see what I can do to find out about it and get back to you.”
Then the licensee should work to discover the answer and get back to the questioner
promptly.
The licensee is not a lawyer, or an appraiser, or a home inspector, or a mortgage broker.
Therefore, the licensee should not try to deal with issues that rightly belong with these
or other professionals. The licensee cannot answer all questions that could come up
about a property that falls within the normal scope of the licensee’s job, and should not
try to. The ability to say, “That’s a good question, but it should be handled by your
attorney,” will not only keep the licensee from getting in over his head in the area of
competency, but also is a service to a client or customer who really should query his
attorney.
The prospective buyer asks the licensee whether the water in the well is free of harmful
bacteria. No inspections have yet been done on the property. The licensee should
answer:
a. “It sure is!”
b. “I don’t know, let’s try some and find out”
c. “I’m not aware of any problems with the well, but that is something your home
inspector should test for you”
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d. “I wouldn’t worry about it – the homeowner will tell you if there are any
problems”
Answer C
Licensing
Competence is in part measured by the regulators by the existence of a valid license.
For this reason, all the following items are considered unworthy and incompetent
conduct under Virginia’s regulations:
• Obtaining a license by false or fraudulent representation
• Holding more than one license as a real estate broker or salesperson in Virginia,
except as allowed under Virginia law
• As a licensee, sitting for another salesperson’s licensing examination
• Having been convicted or found guilty of a misdemeanor involving moral
turpitude, sexual offense, drug distribution or physical injury, or of any felony
• Failing to inform the Board in writing within 30 days of pleading guilty or nolo
contendere, or being convicted or found guilty of a misdemeanor as listed above,
or a felony
• Having had a license as a real estate broker or a real estate salesperson that was
suspended, revoked, or surrendered in connection with a disciplinary action or
that has been the subject of discipline in any jurisdiction
• Failing to inform the board within thirty days of a disciplinary action
• Having been found in a court or an administrative body to have violated the
Virginia Fair Housing Act, the Fair Housing Laws of any jurisdiction in the US
Best Interests of Others
Licensees should act in the best interest of their clients and customers. The licensee
cannot put his commission check or sales goals above the interests of others.
A licensee may have difficulty holding onto the objective of doing only what is in the
best interest of others when his commission check is at stake. The motivations here may
not be plain greed, but may also be from the pressure of needing the income for one’s
family, and the fear of not earning enough money. This can be a tough problem at
times. However, the licensee is under an obligation to serve the best interests of the
client or customer, even if doing so means that the licensee’s commission check is at
risk. Does this mean that by doing right the licensee will always have enough income?
Perhaps, not always. However, the licensee will not have the problems that come along
with a lawsuit or regulatory fine based on facts that clearly indict the licensee, if he
keeps his clients’ and customers’ interests ahead of his own.
There are those who believe that firms would be wise to reward licensees who provide
better than average service, not just those who place the most listings and sell the most
houses. This way, it would be easier for a salesperson having a slow month to stick to
the principal of thinking of others’ interests first.
Working in the best interests of others does not include doing anything dishonest or
immoral. A client may believe it is in his best interest not to sell to a minority, for
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example. However, since excluding potential buyers based on race is illegal, the real
estate licensee may not follow an instruction to avoid selling to a minority.
Working in the best interests of others also includes tendering all offers as soon as
possible and not manipulating in any way the offer process in order to make a sale. For
example, licensees have been known to draw up fake offers in order to get a seller to
sell, or a buyer to make an offer. For example, a licensee may give a seller fake offers
that are lower than a buyer’s offer, in order to induce the seller to take the buyer’s offer.
Or, a licensee may tell a buyer that there are other offers in order to move a buyer to
make an offer, or to make an offer that is higher than the buyer was planning to make.
Another ploy is for the licensee to present an offer from a buyer whom the licensee
represents before offers that came in first from other buyers in order to have a better
chance of earning the full commission on the sale. All such maneuvering is illegal.
The Real Estate Board’s regulations prohibit the following:
• Failing to act as a real estate broker or salesperson in such as manner as to
safeguard the interests of the public; and
• Engaging in improper, fraudulent or dishonest conduct
The licensee believes the seller is offering his home at too high a price and it will never
sell for as much money as is being asked. The licensee has a client who offers what the
licensee believes is a fair price for the house. The licensee draws up some fake offers for
less than his client’s offer, to motivate the seller to take his client’s offer. This type of
activity:
a. is a normal real estate business practice
b. is recommended by most supervising brokers
c. is prohibited
d. is risky, but a good idea
Answer C
Honesty
Honesty and fair dealing must govern all activities of a licensee. Honesty includes not
making any misrepresentations or omitting material facts. All the following actions are
considered misrepresentations or omissions under the Board regulations:
1. Using "bait and switch" tactics by advertising or offering real property for sale or rent
with the intent not to sell or rent at the price or terms advertised, unless the
advertisement or offer clearly states that the property advertised is limited in specific
quantity and the licensee did in fact have at least that quantity for sale or rent;
2. Failure by a licensee representing a seller or landlord as a standard agent to disclose in
a timely manner to a prospective purchaser or tenant all material adverse facts pertaining
to the physical condition of the property which are actually known by the licensee;
3. Failing as a licensee to tender promptly to the buyer and seller every written offer,
every written counter offer, and every written rejection to purchase, option or lease
obtained on the property involved;
4. Failure by a licensee acting as a standard agent to disclose in a timely manner to the
licensee's client all material facts related to the property or concerning the transaction
when the failure to so disclose would constitute failure by the licensee to exercise ordinary
care as defined in the brokerage agreement;
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5. Notwithstanding the provisions of subdivision 4 of this section, a licensee
acting as a dual representative shall not disclose to one client represented in the
dual representation confidential information relating to the transaction obtained
during the representation of another client in the same dual representation
unless otherwise provided by law;
6. Failing to include the complete terms and conditions of the real estate transaction in
any lease or offer to purchase;
7. Failing to include in any application, lease, or offer to purchase identification of all
those holding any deposits;
8. Knowingly making any false statement or report, or willfully misstating the value of
any land, property, or security for the purpose of influencing in any way the action of
any lender upon:
a. Applications, advance discounts, purchase agreements, repurchase agreements,
commitments or loans;
b. Changes in terms or extensions of time for any of the items listed in this
subdivision 8 whether by renewal, deferment of action, or other means without
the prior written consent of the principals to the transaction;
c. Acceptance, release, or substitution of security for any of the items listed in
subdivision 8 a of this section without the prior written consent of the principals
to the transaction.
9. Knowingly making any material misrepresentation or making a material
misrepresentation reasonably relied upon by a third party to that party’s detriment; and
10. Making a false promise through agents, salespersons, advertising, or other means.
The licensee knows that a portion of the land in a property for which he is the selling
agent floods each spring. The licensee:
a. only has to disclose this information if he is asked
b. never needs to disclose this information; it is solely the seller’s responsibility
c. only needs to disclose this information if the property is being sold in the spring
d. must disclose this information in a timely manner to a prospective purchaser
Answer D
Making a Complaint
One of the ways that ethical behavior can be encouraged is by reporting unethical
behavior to the appropriate state regulators. Complaints about real estate licensees may
be made to the Department of Occupational and Professional Regulation. If a complaint
concerning fair housing laws needs to be made, a complaint may be made with the
Virginia Fair Housing Office.
The Department of Occupational and Professional Regulation Complaint form includes
directions on how to fill out and submit the form. The individual about whom a
complaint is being made is listed, along with a summary of the complaint.
The Fair Housing Complaint Form asks the complainant to complete several questions
concerning the type and scope of discrimination. It is illegal to discriminate against
anyone seeking housing based on race, color, national origin, religion, sex, familial
status, elderliness or disability. The Virginia Fair Housing Office enforces Fair Housing
laws in Virginia.
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If a licensee receives a significant complaint about another licensee from another
individual, the licensee should urge that individual to file a complaint with the
appropriate entity. Unscrupulous licensees only hurt the reputation of the industry and
may harm the financial health of unsuspecting individuals. If the individual does not
file a complaint and the licensee has a reasonable belief that the complaint is valid, the
licensee should report the suspected activity
If a licensee becomes aware of wrongdoing on the part of another licensee, the licensee
should report it. The supervising or principal broker should be notified, along with the
Real Estate Board or Department of Fair Housing, as appropriate.
Complaints about other licensees from a client:
a. should be ignored
b. should be immediately reported to the state licensing board, regardless of the
likelihood or seriousness of the complaint
c. should be passed on to the supervising broker and the state licensing board or
Fair Housing Department, as applicable, if the complaint is serious enough to
warrant this action
Answer C
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Chapter Three: Industry Trends
The housing market has been very strong over the past several years. It is expected that
the coming year will bring some economic challenges to the market, so that some
decreases in sales levels may occur. However, it is expected that the market will remain
strong. In this chapter, we will look at current housing statistics, and trends in the
housing market.
Rental Vacancy Rates
As of the first quarter of 2005, national rental vacancy rates were 10.1%, according to the
US Census Bureau. This is down about 3/10 of 1% from the first quarter of 2004,
considered a negligible difference. Rental vacancy rates did not vary significantly
depending on the housing area – the vacancy rate in central cities was 10.4% and 9.7%
in the suburbs.
Rental vacancies were reported to be highest in the South and Midwest, each having a
12.2% rate. The West had a vacancy rate of 7.5% and the Northeast, 7.2%. These
vacancy rates were the same the first quarter of 2004.
Homeowner Vacancy Rates
According to the US Census Bureau, homeowner vacancy rates were 1.8% in the first
quarter of 2005. This is not statistically different from the vacancy rate a year ago. The
homeowner vacancy rate in central cities was 2.0%, higher than that in the suburbs,
which was 1.7%
The highest homeowner vacancy rate was in the Midwest, which had a rate of 2.3%.
The rate in the South was 1.9%, in the Northeast was 1.8% and in the West, only 1.2%.
The Northeast experienced a slightly higher vacancy rate over the first quarter of 2004,
when the vacancy rate was 7.2%. The rates in the other regions remained about the
same.
Rental Vacancy Rates
First Quarter 2005
First Quarter 2004
Source: US Census Bureau
10.1%
10.4%
Homeowner Vacancy
Rates
1.8%
1.7%
Homeownership Rates
The homeownership rate has also remained about the same over the last year. US
Census Bureau statistics say that the current homeownership rate is 69.1% as of the first
quarter of 2005, and was 68.6% in the first quarter of 2004. Homeownership in the
Northeast reached a rate of 65.4%, and has steadily increased since 2003. The Midwest,
which historically has the highest homeownership rate, a homeownership rate of 73.1%
was reached. In the South, homeownership rates reached 71.1%, higher than the first
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quarters of 2003 and 2004. The homeownership rate in the West also increased, reaching
64.9% in the first quarter of 2005.
Homeownership Rates for the United States
Year
Rate
First Quarter 2005
69.1%
First Quarter 2004
68.6%
First Quarter 2003
68.0%
First Quarter 2002
67.8%
Source: US Census Bureau
Homeownership Rates by Region
Region
1st Quarter
1st Quarter
1st Quarter
2005
2004
2003
Northeast
65.4%
65.1%
64.2%
Midwest
73.1%
73.5%
72.9%
South
71.1%
70.3%
69.9%
West
64.9%
63.7%
62.8%
Source: US Census Bureau
The homeownership rate in the first quarter of 2005:
a. was significantly higher than in the same quarter of 2004
b. had decreased dramatically since 2004
c. is lower than it was in 2002
d. remained about the same when compared with the year prior, and experienced a
slight increase
Answer D
Housing Units
As of the first quarter of 2005, there were an estimated 123.3 million housing units in the
United States. Approximately 107.8 million housing units were occupied. 74.5 million
units were occupied by owners, and 33.3 million by renters. Owner-occupied housing
increased from 105,870,000 in the first quarter of 2004 to 107,755,000 in the first quarter
of 2005.
Estimates of the Total Housing Inventory for the United States First Quarter 2004
and 2005 (Estimates are in thousands)
Type
First Quarter 2005 First Quarter 2004
All housing units
123,341
121,633
Occupied
107,755
105,870
Owner
74,488
72,666
Renter
33,267
33,204
Vacant
15,586
15,763
Year-Round
11,984
12,067
For rent
3,765
3,904
For sale only
1,388
1,273
Other
6,831
6,890
Seasonal
3,602
3,696
Source: US Census Bureau
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Homeownership by Age
Homeownership rates for younger ages increased over the year prior in the first quarter
of 2005. The homeownership rate for those under 35 increased from 42.3% to 43.3%,
and for those 35-44 years, increased from 68.8% to 70.1%. The homeownership rates for
those 45-54 years old was 76.5%, from 55 – 64 years was 81.8% and for 65 years and over
was 80.8%. The rates for those age groups were not different from the year before.
Homeownership Rates by Age of Householder (in percent)
Year
United
Under 35 35 to 44
45 to 54
55 to 64
States
Years
Years
Years
Years
1st
Quarter
69.1
43.3
70.1
76.5
81.8
2005
1st
Quarter
68.6
42.3
68.8
77.0
81.7
2004
1st
Quarter
68.0
41.7
67.8
76.5
81.4
2003
Source: US Census Bureau
65 Years
and over
80.8
80.7
80.2
Homeownership by Race and Ethnicity
Non-Hispanic white households had a homeownership rate of 76% as of the first
quarter of 2005. This is up from the 75.5% rate reported by the Census Bureau in the
first quarter of 2004. Black alone homeownership decreased from 49.3% in the first
quarter of 2004 to 48.8% in the first quarter of 2005. The category of “all other races” had
a homeownership rate of 59.4%, up from 58.2% from the first quarter of 2004.
Homeownership Rates by Rate and Ethnicity of Householders (in percent)
Year
United
NonBlack
All Other
Hispanic
States
Hispanic
Alone
Races
(of any
White
race)
Alone
1st Quarter
69.1
76.0
48.8
59.4
49.7
2005
1st Quarter
68.6
75.5
49.3
58.2
47.3
2004
1st Quarter
68.0
75.0
47.7
55.7
46.7
2003
Source: US Census Bureau
Minorities and Homeownership Challenges
Minorities face special challenges to homeownership:
The Department of Housing and Urban Development (HUD) has identified a number of barriers
to homeownership. One important factor is a lack of inventory of affordable single-family
housing available for sale in many areas where a majority of residents are minority families. This
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is particularly true in many of America’s central cities – urban centers where the housing stock,
which is primarily rental property, has deteriorated. According to HUD, the overall
homeownership rate for central cities is only 51.5 percent.
A need for downpayment assistance is another very significant barrier. When compared to nonHispanic white families, many minority families simply lack the accumulated wealth that can
provide for downpayment and closing costs. Oftentimes, intergenerational wealth transfers from
parents to children serve to boost homeownership. For most Americans, the most significant
component of personal wealth (and consequently a determinant of subsequent ability to help
children become homeowners) is the value of their own home. Homeownership is a vehicle to
building wealth and assets, which in turn become instruments for homeownership among future
generations.
Other barriers include (1) a lack of understanding of the homebuying process; (2) a lack of access
to affordable mortgage credit; (3) weak credit histories, often arising from a poor understanding
of financial matters and where financial counseling is required; and (4) a lack of information
about available homeownership programs in the community. Because of this general lack of
financial education, many of these families are subject to predatory practices by some
unscrupulous lenders who charge exorbitant fees and make loans with a high likelihood of
foreclosure. Language and cultural differences can present significant obstacles, particularly
among recent immigrants. Finally, the homebuying process itself is confusing, cumbersome, and
unnecessarily costly.
These are the steps the administration is taking to help more minorities become
homeowners:
Providing Downpayment Assistance. The single biggest barrier to homeownership is
accumulating funds for a downpayment. The President has proposed $200 million annually
for the American Dream Downpayment Fund to help roughly 40,000 families a year with
their downpayment and closing costs.
Increasing the Supply of Affordable Homes. The President wants to dramatically increase
the supply of homes available to low and moderate income families. The President has
proposed the Single-Family Affordable Housing Tax Credit, which will provide
approximately $2.4 billion to encourage the production of 200,000 affordable homes for sale
to low and moderate income families.
Increasing Support for Self-Help Homeownership Programs. The President’s budget triples
funding for organizations, such as Habitat for Humanity, that help families help themselves
become homeowners through sweat equity and volunteerism in their communities.
Simplifying the Home Buying Process & Increasing Education. When buying a home today a
buyer faces a confusing and complicated process. The President and HUD want to empower
homebuyers by simplifying the home buying process so consumers can better understand
and benefit from cost savings. The President also wants to expand financial education
efforts so that families can understand what they need to do to become homeowners.
From, “A Home of Your Own EXPANDING OPPORTUNITIES FOR ALL
AMERICANS”, by President George W. Bush June 2002
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Minorities:
a. have a higher homeownership rate than do whites
b. have few barriers to homeownership
c. have several barriers to homeownership, including lack of affordable singlefamily housing and a need for down payment assistance
Answer C
Mortgage Rates
Mortgage rates remain relatively low in early 2005, and are expected to rise only
slightly in the near future. These continuing lower rates are favorable to buyers.
Because vacancy rates are still so low, real estate is expected to remain a sellers’ market,
even if mortgage rates increase somewhat.
Sales of Homes
In March 2005, sales of existing homes reached 6.89 million, which is the third highest
home sales level ever posted. Sales of new homes reached 1.43 million, which is a new
record. It is expected that existing and new home sales will fall slightly over the next
year, due to the increase in mortgage rates. However, because the labor market is
expanding, the increased financial health of many people will help offset the effects of
rising rates.
Existing home sales increased in the Northeast by 5.6% over the first quarter of 2004,
reaching 1.14 million units. In the Midwest, existing home sales increased by 3.3% over
the first quarter of 2004, with a level of 1.55 million units. The West also saw an
increase in existing home sales over the first quarter of 2005. The sales level reached
1.63 million units, a 5.8% increase over the prior year.
Because the labor market is expanding:
a. home sales are likely to significantly decline
b. home sales are likely to significantly increase
c. the increased financial health of many people will help offset the effects on the
housing market of rising interest rates
d. home sales are likely to experience dramatic fluctuations
Answer C
Price of Homes
Home prices have seen solid increases over the past several years. Existing home price
appreciation was 9.3% in 2004. New home sale prices increased by 13.3% in 2004.
Because home sales are expected to slow down somewhat, prices may decrease as well,
particularly in new home sales. However, home prices will probably not decrease
significantly over the next year.
In the first quarter of 2005, home prices increased by 14.7% over a year ago in the
Northeast. In the Midwest, prices increased by 11.2% over the first quarter of 2004. In
the South, prices increased by 7.0% over the last year, and in the West, prices increased
by 18.9%
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GDP
The gross domestic product (GDP) had a growth rate of 3.1% in the first quarter of 2005.
The slow rate of growth was due in large part to high oil prices. A slow GDP growth
can cause a decrease in job creation, causing unemployment to rise due to new people
entering the job market, which can negatively impact the real estate market. If oil prices
decrease, the GDP growth rate may increase, causing a more solid job market and lower
unemployment. If oil prices remain high, the GDP is likely to remain at a growth rate of
about 3% for the year.
As of the first quarter of 2005, the GDP experienced a slow growth rate because of:
a. low oil prices
b. high oil prices
c. low inflation
d. an increase in mortgage rates
Answer B
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