N.J. Course Approval #1000161
NJ Core/Electives Package A 6 Hrs. Ethics/Core/6 Hrs. Electives on-line credit hours
Section 1 Managing Risk Through Ethics Creating the foundation for ethical decision making and learning how to implement these traits in the everyday career of the licensee are the foundation for this course. By using strong ethical decision making practices the licensee decreases their potential risk, thereby managing it. Hence, the title to the first chapter! The term “ethics” is explored in depth in order to create the basis for recognizing the need for this type of behavior in a successful career. A discussion regarding principles and values is included as well. This discussion continues to bring the licensee to the understanding that basic principles and values will lead to ethical decision making and examples are abundant.
Moral reasoning brings up the steps along the way to ethical maturity. Moral reasoning has many steps and people proceed from one to the next.
There are complete explanations of terms and many examples pertaining to the subject being discussed at each point.
The agent has the opportunity to look at possible real life scenarios and learn how to handle them ethically and legally.
Reference is made in different sections to the NAR Code of Ethics and the foundation it provides for a satisfactory career. The Code is not included due to its size.
Section 2 Ethical Handling of Laws and Regulations New Jersey state license laws are explained so that the agent who was licensed a while ago has the opportunity to refresh his/her memory. By reinforcing the licensee’s knowledge of license law they become more aware of the need for ethical behavior. They have the opportunity to relate real life situations to their own experiences and can reconcile how they handled them in the past with how to handle them in the future if ethical decision making was not used. Another avenue that these discussions underscore is the need to act on behalf of the public rather than in the licensee’s favor.
References are made to when a transaction can be completed by a non-licensee (homeowner, etc.).
In order to protect the public, a great deal of time is spent exploring the different forms of advertising licensees use, the required use of the company name and anything else that must appear in an ad. An accurate property description is required as well as nothing that could be construed as illegal (two-family without proper permits). Once again, the chapter has many examples of advertising and the pitfalls that might prevail.
Fair Housing covers what is and is not permissible in advertising along with explanations of proper behavior based on covered classes.
Teams, web based advertising, and lawn signs are among the other topics covered in this section.
Proper handling of earnest money, trust accounts and commingling are explained and examples provide the opportunity for the licensee to see how small errors in ethical judgment can lead to huge fines and possibly even jail terms.
The handling of commission including how the rate is determined, who can collect it and procuring cause are presented, again, along with many examples. Contingency clauses and the handling of trust funds are included.
Explanations of purchasing property for the licensee’s own account conclude this chapter.
Section 3 Ethics, Agency and You begins with an explanation of “Agency”. It goes into expansive explanations of buyer, seller, agent, homeowner, principal, customer and client among others. Examples abound regarding how to handle typical agency situations that might create a need for ethical decision making. These include an agent not giving the owner the best offer from the buyer, presenting all pertinent facts to the seller before she accepts an offer, property manager making improper decisions, not presenting the buyer’s offer in a timely manner, making assurances to a buyer/customer that the seller/client did not agree to and many, many more. The fiduciary obligations of the licensees are discussed and explored, once again accompanied by many examples. Emphasis is placed on being aware of the different ways the same situation is handled if the party is a customer or a client.
Single and dual agency scenarios are offered as well as what occurs with transactional brokerage. Buyer brokerage is also explored. The role of the cooperating agent is included.
There is a heavy emphasis on the fiduciary responsibilities of the licensee in all phases of the transaction. Once these responsibilities are fully understood, the licensee will be more likely than not, be able to handle themselves and transaction details with an ethical priority.
We delve into the responsibilities of a general agency as opposed to a special agency and the decision making responsibilities of the licensee in both.
The section on agency disclosure covers the need to ascertain “who is my client” and how will we work together? The possibilities of undisclosed and unintentional dual agency are brought up along with the methodology of avoiding these situations. Many examples are included in areas such as; giving information to a customer that should be reserved for a client, the need for undivided loyalty, confidentiality and skill and care as well as a duty to account in order to protect our client.
A long list of statements to avoid is included as well as the reasons they should be avoided, which, of course, is to protect the proper use of the laws of agency and to avoid unethical behavior. This is followed by additional points to familiarize the licensee with in order to reduce risk which could be caused by a lack of ethics.
Section 4 Documents and disclosures include explanations of typical documents used in real estate transactions. These documents are heavily stressed as a means of handling all phases of the transaction for the benefit of the public. Most controversies occur when something is not documented. We stress the need for written documentation to prove that agreements have taken place. Obviously, once there is a written agreement it is difficult, in some cases impossible, to change the course of action without the approval of the parties named. The agent has a great deal of legal protection by using written documents rather than relying on oral agreements. Of greater importance, however, is the fact that the public has more legal protection with written documents.
Purchase offers are explained as being the initial document in writing which sets the offer in motion. The purchase offer often includes a home inspection clause and we discuss how this should be handled by the licensee. This includes do not hire the inspector, accompany the inspector, interpret the inspection report, pay for the inspection, or use the seller’s inspection report. The rationale for this is included.
We include information on property condition disclosure emphasizing the need for it so that the buyer is fully aware of the condition in order to prevent lawsuits. It is not a requirement in New Jersey. Since New Jersey is a caveat emptor state the responsibility for determining property condition rests squarely on the buyer’s shoulders. However, a buyer’s agent would have the fiduciary responsibility of disclosure to his client. Recommended areas to be included in a property condition disclosure are included as well as a discussion on the pros and cons of its use by the seller.
Section 5 Liability In the liability chapter we define the different ways in which a licensee can find they are liable for an action that might result in a lawsuit. We discuss fraud, misrepresentation, negligence and suppression; what they are and how they will become the basis for the ensuing lawsuit. Intentional and unintentional misrepresentation is explained including how they occur, who they affect and the consequences to both the licensee and the public. Suppression occurs when an agency relationship exists and information is willfully withheld from the client. Many scenarios are included to more fully recognize the potential for liability on the part of the licensee when the letter of the law is not followed and unethical behavior results.
Vicarious liability is defined and situations where it can exist are included. A lengthy discussion regarding stigmatized properties follows with reference to the NAR Code of Ethics.
Listing agreements are the next topic with emphasis on avoiding legal problems and liability by committing everything possible to writing. What should be included in the agreement is described. Sub agency is discussed and the benefits to the seller are included. This chapter concludes with a cautionary discussion of the problems inherent in giving any legal advice beyond the scope of licensing.
Section 6 Lead Base Paint The chapter on Lead Paint covers all requirements for lead paint disclosure. An understanding of what lead paint is and why and how it creates medical problems is included. The history of lead paint disclosure law is explored as well as the problems that can occur upon exposure. Methods of testing and evaluation of the results are explored and discussed. Effects of lead on the body are included as well as ways of eliminating or minimizing exposure if lead is found present. Federal penalties for non-compliance are included. The agent’s responsibilities are stressed along with detailed explanations of how to handle different aspects of the transaction where lead paint is concerned. This includes the explanation and dissemination of the required lead paint disclosure pamphlet. There are checklists for sellers, lessors and agents which presents the ethical and legal handling of all aspects of lead paint and real estate.
Section 7 Disclosure, Misrepresentation and Anti-trust investigate many different aspects of disclosure requirements in a real estate transaction. The first aspect is latent defects, what they are and how they impact a transaction. This is followed by ethical actions a licensee should take in order to comply with the law. The difference between making a seeming statement of fact as opposed to making it clear that the licensee is giving their own opinion is explored.
Next, the histories of anti-trust laws are given and their impact on the way in which business must be conducted today. The enormous fines that are possible as a result of anti-trust violations are included. We have an in-depth study of the most common areas of anti-trust that cause problems in the real estate profession.
The first one is price fixing. Examples abound about different scenarios where price fixing occurs and the licensee may be hardly aware of the problem. Statements such as “everyone charges x percent” or “the Board requires us to charge x”, and so on. Any discussion around “standard or regular” commission rates is understood to be illegal. Proper verbiage is included in order to prevent these types of violations.
Next, boycotts are given consideration. Possible scenarios including negative statements about competitors and their reputations are discussed and the ethical way of handling these discussions is included.
Market allocation and tie-in arrangements and referral fees are included in the section with full explanations of all.
The enforcement of anti-trust laws and the penalties involved are included. A recommendation that the company develop a policy covering these areas is recommended followed by a synopsis of duties the agent owes to the client.
Section 8 Everything Else is a variety of subjects that have not been covered previously. The first subject we discuss is contracts. Since broker prepared contracts are frequently used, it is important for the agent to review periodically the essentials of a valid contract. Areas such as legal capacity, legal age and the authority to act are included. Also, the need for an offer and acceptance and consideration for a contract to be legal is recognized. The Statute of Frauds is stressed so that there is an understanding that a contract for the sale of real estate must be in writing. This includes understanding that while offers are often transmitted verbally; ultimately, the contract must be in writing in order to be enforceable. The contract must contain a statement regarding how Megan’s Law is handled in New Jersey. We follow with a recommended list of do’s and do not’s when preparing the sales contract.
The final section of this is an overview of the Fair Housing Laws that were not covered earlier in the course. The role of government in writing and enforcing these laws is explored. Explanations abound regarding the influence these laws have not only on housing, but life in general. Areas such as education and employment and how they are affected are included. Some antiquated laws are cited such as the right to discriminate based on race in housing and the paragraph in a NAR textbook explaining that “the inclusion of certain racial types would diminish the value of homes”. Statements made in the Code of Ethics such as “The Realtor® should not be instrumental in introducing into a neighborhood members of any race or nationality, whose presence will clearly be detrimental to property values in the neighborhood” are also included to further the understanding that fair housing is ever changing and the agent must be aware of any and all current laws under which we must act. Megan’s Law is reviewed.
We continue with exploration of the proper way to work with both buyers and sellers in an ethical and legal way where fair housing is concerned.
Steering is discussed as well as harassment. Both of these issues need to be fully understood in order to avoid acting in any way other than “under the law”.
We briefly sum up the core course in order to clarify the ethical and legal behavior expected of a licensee.
BUYING AND MANAGING INVESTMENT PROPERTY
Section 1 Introduction: The key terms used in the property investment business are listed and defined in order to get the licensee familiar with the vocabulary that will be used. The opportunities available and what is required to get started are explored. We then proceed to describe the traits of a successful commercial agent and look into the mindset of the agent. The importance of motivating factors is explained. Commission structure and length of time from onset to completion of a commercial transaction are explored. The importance of setting goals and steps to keep on track are discussed.
Definitions and examples of commercial real estate are given including types of buildings and vacant land. Explanations include some differences in the type of transaction surrounding both. We proceed to create a master plan to achieve our stated goals. In this phase we include different categories of professionals we will work with in order to bring transactions to a conclusion. These include engineers, appraisers, architects, attorneys, tax consultants and more. The next step involves a more in-depth exploration of types of investment real estate such as low, mid and high rise buildings or unimproved land. Categories of residential investment property as well as advantages and disadvantages of each are included. We then proceed to other investment categories such as mixed use, strip malls, regional and mega malls, outlet centers and industrial property. Finally, fee simple vs. leasehold: which is the best choice for the buyer?
Section 2 Risk vs. Return: A critical decision such as buying investment property carries an understanding of risk tolerance. Categories and attitudes toward risk are discussed at length in order to allow the licensee to determine the risk adversity or tolerance the investor has. Are they risk-averse, risk neutral or risk seeking? Different types of property have different levels of risk. A clear explanation of the process of due diligence is included as well as the need for its use. Due diligence is a complex time consuming process. Financial, property, and legal due diligence are all separate studies that must be coordinated in order to get a full picture of the property in question. Typical problems that might arise during the process are presented. Potential tax benefits of investment property are shown. The topic of insurance coverage presents the different areas where insurance should be obtained.
Section 3 Financial Considerations: We begin with a review of key terms. A substantial part of this section explains math calculations involved in most commercial or investment transactions. These include cash flow, capitalization rate, cash on cash return and depreciation to name a few. Continuing, we address gross and net income, rent multipliers and break-even point. This portion of the course sets the agents understanding of the myriad of financial terms and applications in an investment transaction. Next we provide an overview of valuing the property. We move on to discussing different types of investors and their possible strategies. The need to determine highest and best use and the process of doing it are studied. The balance of this section is devoted to commercial mortgage financing including leverage, balloon loans, blanket mortgages, package loans, construction loans, hard money and other types not typically found in residential financing.
Section 4 Land Use: The next topic we explore is land use. Emphasis is put on environmental issues with discussions about CERCLA and the EPA. The potential for the need for cleanup of a site and the possible costs inherent in doing this are stressed. Zoning and factors that might persuade or dissuade an investor’s decision to buy are explained. Specifics of what could be in zoning laws are included. Some discussion of architecture and design complete this section.
Section 5 Property Value: The basic concepts of the nature of real property value include immobility, tangibility and the bundle of legal rights. Geographic and physical elements such as location and size and conditions of the property begin an understanding of the concept of value. The bundle of legal rights spells out what is permissible during life and, in many cases after death. The impact of water and air rights as well as development rights is discussed.
We then proceed to the appraisal process beginning with an explanation what an appraisal actually is and who may call themselves an appraiser. We then have a brief overview of the qualifications needed to become an appraiser. Next is an overview of the elements of the appraisal. This would include that the appraisal has to be unbiased. The differences between assessed value and investment value are stressed. Next insurable value, liquidation value and market value are compared. The many uses for market value are shown.
The economic forces that drive real estate, such as supply and demand and “anticipation” are discussed.
Other real estate concepts such as balance, contribution, increasing and decreasing returns, and finally, highest and best use are explored. The concept of highest and best use is a major factor in determining whether the property is right for the investor. Other considerations such as flood prone areas, condition, gross useable space, functionality energy efficiency, and parking are brought into the picture.
Section 6 Leasing Property: The entire process of determining buy vs. rent tenant considerations which impacts the value of investment property is discussed. We look at what might motivate some to choose to rent rather than buy, or vice versa. This is personal to the end user, but an investor needs to understand why either might be chosen. Flexibility, fewer responsibilities, guaranteed tax deductible monthly rent payments, less paperwork are among the reasons. We encourage the investor to think like a tenant. This serves two purposes, first, understanding why someone might choose to rent rather than buyer and second, to determine what flaws or positive attributes the property under consideration might have for a prospective tenant. The terms of a lease are included in this portion. This includes who is the tenant, an individual who will be personally responsible for the lease or perhaps a corporation which could walk away unscathed if their business fails. General terms of the lease, including length of time, process of determining rents, net, gross, concessions, subletting and assigning are provided. Determining the true cost of rent by understanding that rent is quoted in several different ways including rentable or useable space. Calculations are included.
We follow with a commercial lease checklist which will encourage a better understanding the commercial lease. The course then touches on some other considerations that should be included such as the tenant mix in the building, building management, is there a stated use provision or a relocation clause?
Finally, we sum up some of the negatives in a commercial lease as opposed to a residential lease. This would include the fact that there are no standard forms, they are usually very long term and binding, there is usually a great deal of negotiating and flexibility so the prospective buyer might never be certain that they are getting the best terms. Summing up, the agent must take the necessary time to analyze the needs of their buyers and tenants.
Section 7 Anatomy of an Investment Transaction: This section is partially a review of what has already been learned in order to reinforce the newly learned aspects of the commercial/investment transaction. Negotiating the contract includes the provisions as well as specifics of the handling earnest money. These can be complex and must be accurately spelled out. Physical and legal due diligence are described and the pressures that can be put on the buyer to perform in a very limited time frame. This is not in the buyer’s best interest. Aspects of physical due diligence are explored. The important step of business and legal due diligence is explained in great detail because this is usually where lawsuits begin. The next step covers a lease review, tenant interviews, service contracts, title and survey, creating the new business entity, pro rations and adjustments, closing the transaction, and a review of the process of due diligence.
Section 8 Everything Else: This section deals with a great many areas in an investment/management transaction. We explain the process of “Flipping” along with the pros and cons, which can be the ultimate goal of an investor. Investors may have to rely on “hard money” in order to complete their transaction. An overview is provided so the reader can have a basic awareness of what they might be dealing with. Tax liens and foreclosures are excellent opportunities for the investor and we include the basics of each. Another avenue investors usually explore is short sales and we provide an opportunity to better understand the complicated process of short sales. We proceed into a study of like/kind exchanges. The important investment vocabulary of like/kind, 1031 exchanges is explained as well as the complexity of the transaction. We delve into the role of the qualified intermediary. Finally we provide an outline of a “typical” 1031 exchange transaction. The last part of this section is some help in determining whether or not an individual is well suited to become an investor in the risky business of real estate and help to determine if investment property is right for an individual. Lastly, we provide some insight on how to minimize the problems and therefore, the risk.
Part 2, Section 1 Property Management: Whereas part one was based on knowledge needed to purchase investment real estate, part two deals with managing that property once you own it. The Introduction is, of course, just a brief overview followed by key terms to learn the vocabulary of the task at hand. Property management defined explores the job description of the property manager along with a list of their typical responsibilities and methods of accomplishing them.
Section 2 Property Management Agreement: In order to have a successful relationship between the owner and the manager, it is always a good business practice to spell out all of the terms and conditions as well as actions of all parties. This section does all that. Provisions of the agreement include financial reports, fiduciary responsibilities including handling of deposits and monthly rent collected and disbursement of funds. Absolute compliance with the law needs to be included in the agreement and, perhaps, penalties for noncompliance. Next we cover the reserve fund, insurance and reimbursement of expenses of the property manager. Needless to say, of great importance is an explanation of management fees. Not only the amount, but when it is paid and what does it include such as capital improvements. Is there an additional fee paid for those? Liability, hold harmless, indemnification and default are explained to underscore the responsibility of the manager. Descriptions of the day to day operation of the job including, reporting, payroll, and analysis of the management plan are outlined. The requirements for extensive reporting and understanding accounting procedures are underscored. There is recognition for the need for extensive risk management actions in order to protect both the manager and the owner. A management plan is determined by the parties and the possibilities of the need for change in direction as time goes by. An analysis of the plan and the possible results create a strong operational guide for all to follow.
Section 3 Management Checklist: A complete summary of the lease terms with in depth explanations of all the different sections. A manager will only be successful if he recognizes the need to create a business plan to avoid adversity. Most adversity is the result of different views of the terms of the lease. For this reason we spend a great deal of time exploring all the fundamentals that will enable all parties to clearly understand their rights and responsibilities. Other possible, but not necessarily common terms are explained. Such as, premises clause, use and exclusive use clauses. Term clause is explained so that it becomes understood the exact beginning of the term of the lease. Is it on the day the lease was signed, on the day construction begins, the day construction is complete or any other designated time. The right of the landlord to enter the premises must be determined and agreed upon. Also, how the lease might be broken, how to settle disputes, and who pays any attorney fees, are all discussed. The conclusion is a simple one; the job is difficult at best. However, a good property manager can be the greatest asset a landlord will have.
*No partial credit can be given for this course