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									   2009 2010
      TREC
   Core Course



D&D SCHOOL OF REAL ESTATE
       800-282-9375
       DDSCHOOLRE.COM
     FAX: 423-232-2804
                               D&D School of Real Estate
                                  P.O. Box 4207
                              Johnson City, TN 37602
                        (423) 232-1811 –or- (800) 282-9375
                          admin@ddschoolofrealestate.com
                      Fax (423) 232-2804 –or- (423) 232-2976




Dear Licensee:

As a licensee, you owe it to yourself to keep abreast of the changes in the industry. Some
practices that were common in the past are now illegal. Others have become outdated
and obsolete as changes continue to come to our industry.

This 2009/2010 Core Law Course is information updated from our previous course and
new information concerning changes in laws and practices of the real estate business in
Tennessee. The 2009/2010 Core Law Course will also give you new insight into this
ever-changing Real Estate industry.

As part of your continuing education requirements, this course has been approved in
Tennessee. Simply follow the instructions enclosed to fulfill the necessary requirements
for the state.

We at D&D School of Real Estate have spent numerous hours collecting the information
and data assembled on these pages. It is our hope that you find this course informative
and helpful in your career. Any questions or comments will be most appreciated. Thank
you for using D&D School of Real Estate as your provider of continuing education.


Sincerely,



Richard J. Clemmer
President




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                                  D&D School of Real Estate 2009
 RENEW YOUR REAL ESTATE LICENSE
         IN 3 EASY STEPS

STEP ONE

       Study the manual at your own pace and complete the progress quizzes and the end
of each section.


STEP TWO

        Transfer all your answers to the answer sheet at the front of the manual, complete
the additional information on the answer sheet then snail mail, email or fax the answer
sheet in for grading.


STEP THREE

       After receiving your notification of successful completion of this course, and your
additional 12 hours, send your renewal fee to the state before your deadline.

A licensed instructor will be available during normal business hours if you have any
questions regarding the course material. No assistance on the final exam questions and
answers can be given. For assistance call: 423-232-1811 or email your questions to
quickhelp@ddschoolofrealestate.com.


Work at your own pace! Complete the course and send in your answers for
grading. We do the rest. We will notify the state of your successful completion of the
course. Thank you for using D&D School of Real Estate.




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                                  D&D School of Real Estate 2009
    2009-2010
       TREC
    Core Course
                                                        D&D School of Real Estate
                                                                       800-282-9375
                                                             Fax: 423-232-2804 or 423-232-2976
                                                                admin@ddschoolofrealestate.com



 Date Completed:__________________________________ R.E. License# (or Social Security): _________________________________

 Name: _______________________________________________________________________________________________________

 Phone #: __________________________________________________Fax#: _______________________________________________

 Address, City, St, Zip: ___________________________________________________________________________________________

 E-Mail: _______________________________________________________________________________________________________

□Charge me $100: I am taking the 16 hour Combo Pack: (12 hour Volume III and 4 hour Core Course)
□Charge $30 for just this 4 hour Core Course.
□See other course answer sheet, where I have given my payment information.

METHOD OF PAYMENT:       VISA   MASTER CARD         DISCOVER        CHECK-OR-MONEYORDER

C.C. NUMBER: _________________________________________________________3 DIGIT CV CODE: ______________ EXP. DATE: _________________



              Quiz 1                          Quiz 2                         Quiz 3                          Quiz 4
     1.    A B C D                   1.    A B C D                   1.   A B C D                    1.   A B C D
     2.    A B C D                   2.    A B C D                   2.   A B C D                    2.   A B C D
     3.    A B C D                   3.    A B C D                   3.   A B C D                    3.   A B C D
     4.    A B C D                   4.    A B C D                   4.   A B C D                    4.   A B C D
     5.    A B C D                   5.    A B C D                   5.   A B C D                    5.   A B C D
     6.    A B C D                   6.    A B C D                   6.   A B C D                    6.   A B C D
     7.    A B C D                   7.    A B C D                   7.   A B C D                    7.   A B C D
     8.    A B C D                   8.    A B C D                   8.   A B C D                    8.   A B C D
     9.    A B C D                   9.    A B C D                   9.   A B C D                    9.   A B C D
     10. A      B    C    D          10. A     B    C    D           10. A     B    C    D           10. A     B   C    D
                          2009-2010
                             TREC
                          Core Course

                                   INDEX

CHAPTER ONE
TENNESSEE REAL ESTATE LAW
A. Law changes and update
B. Rule changes
C. Policy changes by the Commission
D. Quiz

CHAPTER TWO
MANAGING BROKERS SUPERVISORY RESPONSIBILITIES
A. Excerpts from Tennessee Law
B. Use of Principal Broker in the Law
C. Use of Managing Broker in the Law
D. Quiz

CHAPTER THREE
CONTRACTS BASICS AND THE LISTING CONTRACT
A. Contract law basics
B. Listing Contracts
C. Quiz

CHAPTER FOUR
THE OFFER TO PURCHASE CONTACT
A. The offer to purchase contract
B. Quiz

Appendix A) T.R.E.C. Policies
Appendix B) Tennessee law and rules of the commission
Appendix C) Rule changes from the Commission
Appendix D) Contracts




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                           D&D School of Real Estate 2009
                           CHAPTER
                                       1
    TENNESSEE REAL ESTATE LAW
Law Changes and Updates
        From time to time it is necessary to update or modify the laws and the
rules of the Tennessee Real Estate Commission. As our business progresses
it is the responsibility of the Commission to review and update the rules and
laws and bring them current with the industry practices.

       The purpose of the law is to protect the public health safety and
welfare; therefore the updates are designed to do just that. Our industry must
maintain its professionalism and the law sets the standard we must abide by
to insure that professionalism to our clients and customers.

      As a part of the law and rule making process there are motions passed
by the Commission as to what changes need to be made. After the
Commission has made the motions to make changes, there is a time where
the motions (that would be Rules and Laws) are brought to legislative and
executive committees. The time frame it may take to have the legislature
change the law is not known. We work under the assumption that these
changes are in the works since it is the will of the Commission to have them
made.

      Below are listed a few of the recent motions that the Commission has
made. These motions are still in process of being mad into laws.

       During the July meeting of 2007, concerning the requirement for
licensees to have renewal payments and all other requirements submitted 60
days prior to their respective renewal dates. The interim Executive Director
suggested that this requirement under T.C.A. 62-13-307(a) is not
enforceable under the new staggered renewal cycle. The Commission moved
to grant the authority to compile a recommendation for this law change to

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                              D&D School of Real Estate 2009
the interim Executive Director and the Commission attorney. Since that date
there has been no change to the law or to the rules that would change this
60-day requirement. It is assumed that this change is to be completed by the
Executive Director and the current attorney and will be approved by the
legislature at some future date.

       During the July, 2008 Meeting, the Commission attorney suggested
that the wording of T.C.A. 62-13-313(e)(1)be changed from “Two (2) years
form the date of commission of the alleged violation of 62-13-312, or the
date that the complainant actually became aware of the violation,” to “Two
(2) years from the date of commission of the alleged violation of 62-13-312,
or the date that the complainant knew or should have known of the
violation.” The Commission had no objection to this change but it is not in
the law thus far. Perhaps both of the above law changes will show up in the
near future.

       In the past two years there have been no significant changes to the
license law covering real estate; Title 62, chapter 13 of the Tennessee Code.
However there are a number of areas that we should review on a regular
basis. Following is a review of 62-13-12, discipline – refusal, revocation or
suspension of license – downgrading of licenses – automatic revocation


62-13-312 Discipline – Refusal, revocation or suspension of license – downgrading of
licenses – Automatic revocation.

This section of the Tennessee real estate licensing law is important for review on a regular basis to
ensure licensees are familiar with proper procedures. The following discussion of this rule will help
in the understanding of the law and how it applies to daily practices of a real estate licensee in
Tennessee. We have included a copy of this portion of the law in section four of this course
beginning on page 60. Please remember this is a study of and an interpretation of the law as
understood by the author and is not meant to be a legal interpretation or legal advice as to the
Tennessee Real Estate law. Please contact your attorney for any and all legal advice as to this set
of laws presented here.

         The commission has the power to reprimand, suspend or revoke a real estate license after
ascertaining the facts of a verified complaint and holding a hearing to determine the guilt or
innocence of a licensee.
         In dealing with discipline 62-13-312’s 21 paragraphs deal with many different areas.
         62-13-312(1) Substantial and willful misrepresentation. Licensees must be diligent in all
representations they make to insure their statements are truthful or factual. Misrepresentation is
not tolerated under the law.
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                                      D&D School of Real Estate 2009
         62-13-312(2) False promises. Any promise made that was intended to influence a party to
a contract to enter into a contract that the licensee did not intend to keep is a violation of the law.
Agents must be careful, words do count and promises made must be kept or the intentions must
have been to keep the promise when it was made if at all possible.
         62-13-312(3) and (4) Continued and flagrant misrepresentation or making of false
promises through others or any advertising medium is not an acceptable practice. Although most
agents do not openly pursue this path it has and continues to occur in the market place. It is further
more, each agent’s duty to report violations to the Commission. If in your market place you see this
practice going on, you should collect the evidence and pass it along to the Commission.
Advertising is always the responsibility of the principal broker and should any misrepresentative
advertising be noticed, the principal broker should immediately be notified. Further more the use of
a trade name, or an association name, being used by one who is not a member is illegal under the
law.
         This paragraph is also quoted in Commission policy statement number 2000-CPS-004,
dated April 5, 2000. In this statement rule 1260-2-.12 and the annotated code 62-13-312 is
referred to as to Internet advertising. The advertising is to be under the direct supervision of the
principal broker and that misrepresentation or misleading advertisement is a breach of the code.
Advertising on the Internet is not to lead the consumer to believe the advertiser is operating in this
state or a portion of this state when they are not. This was further revised on June 7, 2001
regarding MLS listings advertised on the Internet. Generally, when advertising listings that are not
the owner of the websites listing the requirements are as follows:
                 1. Owner of the website’s firm name and telephone number must appear on
                      each page including pages referenced in paragraph 3 below.
                 2. For web pages displaying “thumbnails” of listings, a disclaimer must be
                      displayed indicating that some or all of these listings may not belong to the
                      firm whose website is being visited. A “thumbnail” shall refer to a summary of
                      a listing containing no more than five selection criteria describing the property.
                      If any information regarding the listing agent is given in the “thumbnail”
                      however, the listing firm’s name and telephone number must also be
                      displayed.
                 3. For web pages displaying a detailed listing containing greater than five
                      selection criteria describing the property, the listing firm’s name and telephone
                      number must be displayed and clearly identified as such.

        62-13-312(5) failing to remit within a reasonable time, moneys or other valuable
consideration coming into the licensee’s possession belonging to others is a violation. Under rule
1260-2-.0(2) the Commission requires all monies to be turned over immediately to the principal
broker. Remember the rules are the Commissions interpretation of the law and must be adhered
to.

         62-13-312(6) failing to preserve records for three years relating to real estate transactions
following its consummation is another requirement of the law.

       62-13-312(7) Acting for more than one party to a transaction without the knowledge and
consent in writing of all parties for whom the licensee acts. Although there is no place in the

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                                       D&D School of Real Estate 2009
Tennessee real estate license act that specifically approves dual agency, this paragraph sets out
the instructions necessary to be a dual agent in a transaction.

          62-13-312(8) Failing to furnish a copy of any contract relevant to a real estate transaction
to all signatories at the time of execution is a violation of the law. This is probably the most abused
paragraph in the law. We are to furnish copies of contracts at the time of execution, not a day or
two later. To the letter of the law this means to furnish copies at the time a signature is obtained.
Realizing that the contract is not a contract until acceptance by all parties does not, in our opinion,
relieve the agent from the responsibility of supplying copies whenever a signature is obtained.
Further, this requirement obliges the agent to return to the signatory immediately and furnish a
copy of the contract when signed by any other party, whether a contingency, counter offer or
acceptance of said offer. Common practice of relaying counter offers by phone, fax or other
electronic method does not seem to fulfill the letter of the law.

        62-13-312(9) Termination dates of any contract used in real estate is a must under the law.
Contracts that automatically extend are a violation of this section of the law. Common contract law
makes this quite clear; all contracts must have a beginning and ending date to be valid.

        62-13-312(10) Substituting a contract, for the personal gain of the agent or for malicious
purposes, for an existing contract is against the law. If by chance someone you have spent a lot of
time with suddenly enters into a contract using another agent, that’s too bad, but under the law to
replace that existing contract with a new one just to collect the commission is not allowed under
Tennessee law.

        62-13-312(11) Accepting a commission, or any valuable consideration for the performance
of any acts covered by the law from anyone except the broker with whom you are affiliated is a
breach of the law. This makes it quite clear who we can accept commissions from. In the case of
an agent leaving one firm and becoming affiliated with another firm, the first broker may, still pay
any commissions earned at the first firm and not as yet paid at the time of transferring firms. The
agent was so affiliated at the time the commission was earned, when the contract was accepted.
This paragraph further can be interpreted to mean that any gifts of value (bonuses, dinners,
money, or presents) given to an agent for the excellent work they performed for a client or
customer must be given to the broker and then at the broker’s discretion passed on the agent.
Check with your broker to be sure you understand your company’s policy.

        62-13-312(12) Conviction of many offenses or pleading nolo contendere is also reason for
revocation or suspension of a license. Consult the law if you feel this could apply specifically to
you.

         62-13-312(13) Discrimination is a breach of the Tennessee license law. A breach of local,
state or national laws constitutes a breach of the Tennessee real estate broker’s license act.
Further violation of any rule adopted by the Commission or any order entered by the Commission
constitutes a violation.

          62-13-312(15) Brokers must exercise adequate supervision over the activities of licensees
affiliated with them. They must additionally complete any administrative measures required by the
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                                       D&D School of Real Estate 2009
Commission within a reasonable time period. The rules require immediate action in the case of an
agent moving his/her license to another firm.

         62-13-312(17) Paying or accepting, giving or charging any undisclosed commissions,
rebates or compensation for profit is a violation. Failing to disclose your intention as an agent in a
transaction to property owners, whether you purchase directly or indirectly through a third party is a
violation. When purchasing property be sure and disclose your licensure to all parties to a
transaction, it is good practice to disclose even when assisting a relative and a must when
representing a company you may have interest in.

        62-13-312(19) We must remember that we are not attorneys and therefore may not give
legal advice. There are eight different areas of the law we travel through as a licensed real estate
agent and we know something of all areas, however, without being licensed as an attorney we may
not give legal advice. This is an area we easily cross into without careful consideration of what we
say and advise.

        62-13-312(20) To sum up this section of the law, paragraph 20 generally covers all other
aspects of improper, fraudulent or dishonest dealing. This catch-all paragraph gives leeway to the
Commission in their decisions as to a breach of the law.

          62-13-312(21) Paragraph 21 covers the violation of the Tennessee Time-share act, which
is a different title and chapter of the Tennessee code annotated, as a violation of the real estate
brokers act.


       Although this is just a part of the license law, practitioners should be
aware of the law and any changes that are made. Every month the
Commission meeting minutes are posted on their website for your review. A
brief scan of the minutes will help each licensee stay abreast of changes that
may occur. Additionally the appendix offered in this course will assist in
being brought up to date. To access the commission website we recommend
going to D&D School of Real Estate’s website (www.ddschoolre.com) and
clicking on the link to the Tennessee Real Estate Commission.


Rule Changes

       In addition to the Tennessee Code, chapter thirteen which contains the
laws of our state, the Real Estate Commission additionally has the authority
to pass rules which are intended to help further clarify the laws in chapter
thirteen. Chapters 1260-1 and 1260-2 were certified in 1974 under Chapter
491 of the public Acts of 1974. Additional amendments to the rules have
occurred in 1977, 1978, 1979, 1980, 1983, 1984, 1985, 1987, 1988, 1989,
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                                       D&D School of Real Estate 2009
1990, 1991, 1992, 1994, 1998, 1999, 2006 and 2008. As you can see our
Commission has been busy keeping our rules in step with the ever-changing
services of the real estate industry. We will discuss the 2008 changes below.
      1260-2-.37 SEPTIC SYSTEM INSPECTION LETTERS. A licensee preparing an offer to
      buy shall provide in the offer and make the buyer aware that, for a fee, a septic system
      inspection letter is available through the Tennessee Department of Environment and
      Conservation, Division of Ground Water Protection.
      Authority: T. C. A. §§ 62-13-203 and 62-13-403. Administrative History: Original rule
      filed December 3, 2007; effective February 16, 2008.

       This new rule was filed in December of 2007 and became effective
February 16, 2007. It seems to be self explanatory in that it is the duty of an
agent now, in an offer to purchase, make the buyer aware that the Tennessee
Department of Environment and Conversation; Division of ground water
protection; has available for a fee, a septic system inspection and letter for
said buyer. This of course would be a requirement for properties that are not
on a public sewer system only. This is the only new rule indicated on the
state website.


There are additional rule changes as noted below.

      1260-1-.01 APPLICATIONS FOR EXAMINATIONS.
      (1) Affiliate Brokers. Applicants for the affiliated brokers examination must follow the
      procedures published by the testing vendor approved by the Tennessee Real Estate
      Commission concerning appointments for testing information required, and deadlines for
      submission of examination applications.
      (2) Brokers. Applications for the broker’s examination must follow the procedures
      published by the testing vendor approved by the Tennessee Real Estate Commission
      concerning appointments for testing, information required, and deadlines for submission of
      examination applications.
      (3) An applicant who passes an examination is not necessarily qualified for licensure.
      (4) No person shall be eligible for examination or be considered for licensure unless two
      (2) years have passed from the date of expiration of probation, parole or conviction, or
      from the date of release from incarceration, whichever is later in time. This restriction shall
      apply to all felonies, and to misdemeanors which involve the theft of money, services, or
      property. An applicant who appears before the Commission requesting licensure and who
      is denied will not be eligible for reconsideration for six (6) months from the date of denial.

      Authority: T.C.A. §§ 62-13-112, 62-13-203, 62-13-301, 62-13-303, and 62-13-312.
      Administrative History: Original rule certified June 7, 1974. Repeal and refiled March 3,
      1980; effective April 27, 1980.Repeal and new rule filed April 17, 1985; effective May 17,
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                                     D&D School of Real Estate 2009
      1985. Amendment filed September 16, 1987; effective October 31, 1987. Amendment filed
      November 21, 1988; effective January 5, 1989.Amendment filed June 17, 1991; effective
      August 11, 1991. Amendment filed July 31, 2006; effective October 14, 2006. Amendment
      filed December 3, 2007; effective February 16, 2008.

       Paragraph four above was added to the rule and became effective
February 16, 2008. This rule is self-explanatory and effects new applicants
for a real estate license. This is also a change that should be important to a
Principal Broker when considering persons interested in a career in real
estate in the state of Tennessee.

      1260-1-.12 FEES. The following fees shall apply:
      (1) For each examination, a fee to be paid to the testing vendor as set by state contract;
      (2) For the issuance of an original license, a fee to be paid to the Commission of one
      hundred dollars ($100.00);
      (3) For each renewal of a license, a fee to be paid to the Commission of eighty dollars
      ($80.00);
      (4) A fee to be paid to the Commission for the following:
      (a) Change of firm address, fifty dollars ($50.00);
      (b) Change of Principal Broker, twenty-five dollars ($25.00);
      (c) Transfer of affiliation or transfer in or out of retirement status, twenty-five dollars
      ($25.00);
      (d) Commission manual, ten dollars ($10.00);
      (e) Certified copies, one dollar ($1.00) per page;
      (f) Copies, twenty-five cents ($.25) per page;
      (g) Printouts of licensee information, charges will be based upon the cost of producing said
      printout;
      (h) Certification of licensure, twenty-five dollars ($25.00);
      (i) Printouts of licensee continuing education, ten dollars ($10.00);
      (j) Change of name, ten dollars ($10.00);
      (k) Duplicate license, ten dollars ($10.00);
      (l) Bad Checks must be made good within five (5) days after the licensee is notified. Any
      bad check not made good within sixty (60) days of the notification will be subject to a one
      hundred dollar ($100.00) fee for collection.
       (5) A penalty fee of fifty dollars ($50.00) per month, or portion thereof, for failing to timely
      renew a license if the licensee reinstates the license within the sixty (60) day time frame
      set forth in T. C. A. §62-13-319(a); provided however, the Commission shall have the
      discretion to waive or lower said fee for good cause shown.
      Authority: T.C.A. §§62-13-203, 62-13-307, 62-13-308, and 62-13-319. Administrative
      History: Original rule filed July 14, 1989; effective August 28, 1989. Amendment filed June
      17, 1991; effective August 11, 1991. Amendment filed October 1, 1998; effective
      December 15, 1998. Amendment filed December 8, 1999; effective February 21, 2000.
      Amendment filed December 3, 2007; effective February 16, 2008.


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                                     D&D School of Real Estate 2009
        Paragraph 5 has been added to this rule. This fee for failing to renew
in a timely fashion has been established as $50.00, however the
Commission, at its discretion, may waive or lower this late fee. According to
Tennessee Code 62-13-319 the fee described above is within the limits of
said law. The 60-day rule for reinstatement after a missed renewal date is
still the outside limit for reinstatement. After that date any person desiring
reinstatement must reapply for licensure. This would entail reexamination.
Paragraph (a)(1) and (2) expands the Commission’s ability to waive
reexamination or additional education requirements or set reasonable
conditions in to penalty fees of not more than $100.00 per month or portion
there of.

      1260-1-.15 ERRORS AND OMISSIONS INSURANCE COVERAGE
      It shall be a requirement for an active licensee to carry errors and omissions insurance to
      cover all activities contemplated under the Tennessee Real Estate Broker License Act
      unless the Commission is unable to obtain coverage pursuant to T.C.A. §62-13-112(g)
      which would void the requirement of coverage under the applicable contract period.
      (1) A licensee who places his license in an inactive or retired status is not required to carry
      errors and omissions insurance until such time as his license is activated.
      (2) New licensees, licensees who activate their license from an inactive or retired status,
      and licensees who reinstate their license from an expired status at a time other than the
      beginning of the licensing period shall pay a prorated premium in accordance with a
      schedule provided by the insurance provider.
      (3) The Commission shall perform random audits to assure that licensees have met the
      requirements of this rule.
      (4) Any independently obtained errors and omissions insurance policy shall, at a minimum,
      be issued upon the same terms and conditions as the policy obtained by the Tennessee
      Real Estate Commission pursuant to T.C.A. § 62-13-112, including, but not limited to, the
      limits of coverage, the permissible deductible, the permissible exemptions and the term of
      the policy.
      Authority: T.C.A. §§62-13-203 and 62-13-212. Administrative History: Original rule filed
      October 15, 1990; effective November 29, 1990. Amendment filed October 1, 1998;
      effective December 15, 1998. Amendment filed December 3, 2007; effective February 16,
      2008.


      Paragraph (4) above has been added to further clarify errors and
omissions policies other than the policy obtained by the Real Estate
Commission. This rule is referenced to Tennessee Code 62-13-112(g)



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                                     D&D School of Real Estate 2009
      1260-2-.33 GIFTS AND PRIZES.
      February, 2008 (Revised) 1
      (1) A licensee may offer a gift, prize, or other valuable consideration as an inducement to
      the purchase, listing, or lease of real estate only if the offer is made:
      (a) Under the sponsorship and with the approval of the firm with whom the licensee is
      affiliated; and
      (b) In writing, signed by the licensee, with disclosure of all pertinent details, including but
      not limited to:
      1. Accurate specifications of the gift, prize, or other valuable consideration offered;
      2. Fair market value;
      3. The time and place of delivery; and
      4. Any requirements which must be satisfied by the prospective purchaser or lessor.
      Authority: T.C.A. §62-13-203 and 62-13-203(b). Administrative History: New rule filed
      September 16, 1987; effective October 31, 1987. Amendment filed October 1, 1998;
      effective December 15, 1998. Amendment filed December 3, 2007; effective February 16,
      2008.

Paragraph (2) [No cash rebates, cash gifts, or cash prizes may be paid to any
person who does not hold a real estate license.] has been eliminated from
the rules of the Commission.

      1260-5-.01 PURPOSE. The Tennessee Real Estate Broker License Act of 1973 (as
      amended) requires satisfactory completion of certain courses in real estate by applicants
      for, and holders of, licenses as a broker or affiliate broker. The purpose of chapter is to
      specify standards and procedures governing the establishment and operation of courses,
      programs, and schools which are designed to satisfy such educational requirements. This
      chapter establishes standards and procedures governing the establishment and operation
      of courses, programs, and schools which are designed to satisfy such educational
      requirements. This chapter further establishes guidelines and requirements to be fulfilled
      by licensees in obtaining required education.
      Authority: T.C.A. §§62-13-106, 62-13-203, and 62-13-309. Administrative History:
      Original rule filed March 3, 1980; effective April 27, 1980. Amendment filed September 30,
      1980; effective December 15, 1980. Amendment filed December 3, 2007; effective
      February 16, 2008.


      We have provided the old wording (strikeout) so you can better
understand this change. The last sentence in the paragraph was additionally
added. Noted below are the changes made to this chapter of the rules of the
Tennessee Real Estate Commission.




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                                     D&D School of Real Estate 2009
1260-5-.03 REQUIREMENTS FOR COURSES.
(1) The applicant shall demonstrate to the satisfaction of the Commission that each course
submitted for approval will:
(a) Cover subjects which are reasonably related to the practice of real estate and suitable
suitably advanced to benefit and enrich the students enrolled;
(b) Be conducted in a facility which contains adequate space, seating, and equipment;
(c) Consist of no fewer than two (2) classroom hours; and
(d) Incorporate appropriate methods for determining whether a student has successfully
completed such course. Such methods shall include, but not be limited to:
          1. A minimum attendance requirement of eighty percent (80%), except that such
          requirement shall be one hundred percent (100%) if the course consists of eight
          (8) or fewer classroom hours.
          2. Provisions to make up for all classes missed by a student; and
          3. A minimum passing requirement of seventy percent (70%) and a
          comprehensive final examination (or equivalent measure of achievement), if the
          course consists of more than eight (8) classroom hours. However, courses taken
          by affiliate brokers or brokers of eight (8) classroom hours or less may be
          approved for continuing education or post licensing credit without a
          comprehensive final examination being given.
(2) Each hour of classroom instruction required by T.C.A. §62-13-303 shall consist of fifty
(50) minutes of actual instruction.
(3) There shall be a sixty (60) hour course in basic principles required of all applicants for
an affiliate brokers license under T.C.A. §62-13-303. The “basic principles of real estate”
course required of applicants for affiliate broker’s licenses by T.C.A. §62-13-303 shall
include significant instruction in the following areas:
(a) The real estate business
(b) The agency relationship
(c) Contracts (listings; leases; sales)
(d) Governmental controls on real estate, including the Tennessee Real Estate Broker
License Act
(e) Legal aspects of real estate
(f) Real estate mathematics
(g) Real estate valuation
(h) Real estate finance
(i) Listing, offer to purchase and settlement forms
(j) Tennessee real estate laws, rules, practice, etc.
(k) Fair housing
(l) Any additional subject which the Commission may require by reasonable written notice
To course sponsor and/or instructor.
(4) The “office or brokerage management” course required of applicants for broker’s
licenses by T.C.A. §62-13-303 shall include significant instruction in the following areas:
(a) Overview of theories, processes, and functions of management
(b) Review of contracts and closing statements
(c) Transition to management role
(d) Planning; policy-making; setting objectives
(e) Organizing and staffing
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                               D&D School of Real Estate 2009
(f) Recruiting, selecting, training, and retaining sales and office personnel
(g) Written instruments; policy and procedures manual; contract between independent
contractor and broker, and contract between salesperson-employee and broker
(h) Financial systems and records
(i) Processes, procedures, and methods of control
(j) Stages of development in real estate firms
(k) Market analysis
(l) Horizontal and vertical expansions
(m) Mergers and acquisitions
(n) Governmental controls on real estate including the Tennessee Real Estate Broker
License Act
(o) Any additional subject whom the Commission may require by reasonable written notice
of the course sponsor and/or instructor.
(5) (a) Effective January 1, 1993, the content of all courses approved by the Commission
for continuing education shall be directly related to the following topics:
1. Valuation of Real Estate
2. Construction-Property condition, energy
3. Contracts
4. Agency
5. Financing Real Estate
6. Investment Real Estate
7. License Law and Rules
8. Property Management
9. Taxation of Real Estate Transaction
10. Closing and Settlement Procedures
11. Land Use, Planning and Zoning
12. Time-shares
13. Type of Property (condo, dom, pud, zero lot line, single, pud, etc.)
14. Fair Housing
15. Antitrust
16. Ethics in Real Estate
17. Professional Liability
(b) The Commission may add or delete any subject by means of reasonable written notice
to the course sponsor and/or instructor.
(6) A candidate for an affiliate broker license shall be deemed to have completed the 60-
hour course described in paragraph (3) above if:
(a) the candidate holds a college or university degree with a major or concentration in real
estate and the candidate’s transcript shows successful completion of at least one 3
hour (30 hours or more of classroom instruction) course in the principles/fundamentals
of real estate and at a minimum two more courses totaling at least 60 hours of
classroom instruction in real estate as evidenced by the title or description of the
course; or
(b) The candidate holds a law degree and the law school transcript evidences successful
completion of at least one 3 hour course (30 hours or more of classroom instruction) in
real property and at least 60 other hours of classroom instruction in contracts and
agency.
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                              D&D School of Real Estate 2009
      Authority: T.C.A. §§62-13-106, 62-13-203, and 62-13-303. Administrative History:
      Original rule filed March 3, 1980; effective April 27, 1980. Amendment filed September 30,
      1980; effective December 15, 1980. Amendment filed May 11, 1984; effective June 10,
      1984. Amendment filed April 17, 1985; effective May 17, 1985. Amendment filed
      November 17, 1987; effective January 1, 1988. Amendment filed November 21, 1988;
      effective January 5, 1989. Amendment filed September 13, 1989; effective October 28,
      1989. Amendment filed November 4, 1991; effective December 20, 1991. Amendment filed
      March 24, 1994; effective June 7, 1994. Amendment filed October 1, 1998; effective
      December 15, 1998. Amendments filed December 3, 2007; effective February 16, 2008.


       There is a typo correction in paragraph (1)(a) as indicated by the
strikeout. Additionally the rules concerning qualification for prelicensing
through a college degree have been changed dramatically in paragraph (6).
The old paragraph has been stricken and the above new paragraph has been
added.


      1260-5-.07 RECORDS.
      (1) The sponsor of any course(s) approved by the Commission shall maintain accurate and
      permanent records on all students enrolled in such course(s). The records shall include all
      information and ratings considered in determining whether students successfully complete
      such course(s). The records shall include all information and ratings considered in
      determining whether students successfully complete such course(s). Such records shall be
      made available upon request by the Commission or its authorized representative.
      (2) It shall be the responsibility of each licensee to provide his file identification number at
      the time of registration for any Tennessee Real Estate Commission approved continuing
      education course for affiliate brokers, or post licensing course for brokers. If the licensee
      fails to provide his file identification number to the sponsor, he may not receive credit for
      the course from the Tennessee Real Estate Commission.
      (3) Each sponsor of any Commission approved continuing education course for affiliate
      brokers, or post licensing course for brokers, shall submit to the Commission, within ten
      (10) working
      days of the completion of the course, a roster of all students who successfully complete
      each course. The roster shall include the name social security number and license/file
      identification number of each student. This information shall be provided in a roster format
      approved by the Commission.
      Authority: T.C.A. §§62-13-106, 62-13-203, and 62-13-303. Administrative History:
      Original rule filed March 3, 1980; effective April 27, 1980. Amendment filed May 11, 1984;
      effective June 10, 1984. Amendment filed February 3, 1992; effective March 19, 1992.
      Amendment filed December 3, 2007; effective February 16, 2008.




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                                     D&D School of Real Estate 2009
      The strikeout shows the information that has been eliminated from the
above rule of the Commission.

      1260-5-.11 CORRESPONDENCE COURSES.
      (1) The term “distance education” shall be used interchangeably with the term
      “correspondence courses” and shall include all education in which instruction does not
      take place in a traditional classroom setting but rather through other media where the
      teacher and student are separated by distance and/or by time. Distance education courses
      approved by the Commission shall be completed within one (1) year of the date of
      enrollment in order for continuing education to be granted to the licensee. Distance
      education may include, but is not necessarily limited to the following categories of learning
      materials and/or transmission modes:
      (a) Printed Material. A distance education course using printed materials may be approved
      by the
      Commission if:
      1. Students will be provided manual or other printed materials;
      2. A comprehensive course outline, requirements for successful completion of the
      course and information regarding availability of faculty to students are provided;
      3. It contains at least six (6) written exercises which are to be submitted periodically
      to the instructor, graded and returned to the student; and
      4. If the class provides more than eight (8) hours of credit, a comprehensive final
      examination or equivalent measure of achievement is executed prior to the
      sponsor submitting the roster to the Commission indicating successful
      completion of the course for any and all students.
      (b) Computer Based/Disk/Online Material. A distance education course using these
      materials and/or formats may be submitted to the Commission for analysis and
      possible approval if the course is certified by the Association of Real Estate License
      Law Officials (ARELLO), or other certifying body at the discretion of the Commission,
      as to technology, support of the technology, interactivity and course design.
      1. The Commission will review these certified courses on a case by case basis to
      determine whether the curriculum will meet Commission education requirements.
      2. Any course which would provide more than eight (8) hours of continuing
      education shall include a final examination which shall be executed prior to
      submission to the Commission for education credit.
      3. Approval of a course under this paragraph will be automatically withdrawn should
      certification by the respective certifying body be discontinued for any reason.
      Authority: T.C.A. §§62-13-106, 62-13-203, and 62-13-303. Administrative History:
      Original rule filed May 11, 1984; effective June 10, 1984. Amendment filed November 17,
      1987; effective January 1, 1988.Repeal and new rule filed December 3, 2007; effective
      February 16, 2008.




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                                    D&D School of Real Estate 2009
      This rule change further clarifies the standards that must be met for
correspondence courses used in continuing education requirements approved
for either pre or post license education. Correspondence education has
become a standard in our state for most continuing education. The reasons
for this vary but from our point of view we see the timesavings for
Tennessee Agents, without sacrifice of quality education, as the primary
benefit.

       1260-5-.16 COURSE APPROVAL PERIODS.
       February, 2008 (Revised) 1
       (1) Effective January 1, 1993, the Commission will approve courses based upon a four (4)
       year review cycle of all courses. Each cycle will end on December 31st of the fourth year.
       The first four (4) year period of approval will end December 31, 1996.
       (2) Each course approval shall remain effective until the end of the review cycle
       notwithstanding the date upon which it was approved.
       (3) All course providers shall be required to resubmit their courses for approval at least one
       hundred twenty (120) days prior to the applicable expiration date. Failure to meet this
       deadline may result in the non-approval of a course.
       Authority: T.C.A. §§62-13-106, 62-13-203, and 62-13-303. Administrative History:
       Original rule filed February 3, 1992; effective March 19, 1992. Amendment filed March 24,
       1994; effective June 7, 1994. Repeal and new rule filed December 3, 2007; effective
       February 16, 2008.

      This rule change further clarifies the process necessary for course
providers to follow in order to renew existing courses.

       This concludes the rule changes made by the Commission since the
printing of the Official manual of the Tennessee Real Estate Commission.
There is to be a new printing of the Manual around the beginning of 2009.
Additional changes should be included in this new printing. Below are the
proposed rule changes by the commission from meetings in 2007 and 2008.

Rule 1260-2-.09(6)
Rule 1260-2-.12
Rule 1260-5-.12
Rule 1260-5-.17
Rule 1260-6-.04
Rule 1260-6-.11

New rule requiring schools to respond to T.R.E.C. surveys about pass/fail ratios.




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                                     D&D School of Real Estate 2009
Policy changes by the Commission

       There have been two policy changes by the Commission in the past 2
years. Those policies are included in Appendix A) of this course.
Additionally the Commission has deleted a number of policies over the past
two years as a house keeping measure. Those policies deleted were either
changed or replaced with a rule change or a new policy. The new policies
are discussed below.

                                           Policy # 07-002

         Established that principal brokers will be fined $1,000.00 for failing to supervise
affiliate brokers under T.C.A. 62-13-312(b) (15) when said affiliate brokers are not
insured with Errors and Omissions insurance when licensed. This fine will be per
uninsured affiliate broker under the principal broker’s supervision. This policy does not
preclude the Commission from other legally authorized means of recourse available to
them.



                                 Policy number 2008-CPS-001

        This policy has to do with the renewal of a license more than 60 days after the
expiration date of the license as authorized by T.C.A. 62-13-319

1. If reinstatement is requested due to medical reasons the Commission may reinstate
with Doctor statements and licensee statement explaining the lapse. Any late penalty fees
would not be assessed if reinstatement were granted under this policy.

2. In the event the failure to renew is due to lack of required continuing education, errors
and omissions insure renewal or renewal fees, the licensee must a sign a Consent Order
agreeing to comply with the following requirements:
        1. Provide poof of compliance with all perquisites or conditions, including
payment of the renewal fee;

       2. Penalties
              a) For a license expired more than 60 days, but less than 120 days: Pay a
              penalty fee of $50.00 per 30-day period, or portion thereof, from the time
              the license expires;




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                                   D&D School of Real Estate 2009
             b) For a license expired more than 120 days but less than one year: Pay an
             additional fee of $150.00 per 30-day period or portion thereof, beginning
             on the 121st day, and,
      3. Conditions:
             a) Attend one regularly scheduled two-day meeting of the Tennessee Real
             Estate Commission with in 6 months of the date of Consent Order.
             Licensee will receive 8 hours of continuing education credit for the
             attendance.

             b) In lieu of attending meetings pay a civil penalty of $1500.00 within 30
             days of the date of the Consent Order.

        If the licensee seeking reinstatement executes a Consent Order but
fails to complete any one of the requirements, an additional civil penalty of
$2500.00 will be assessed. Penalties accrue until all requirements are met.
Penalty fees will begin accruing on the first day following the license
expiration date and will be assess every 30 days at the above rate.

       Reinstatement sought after more than one year from expiration must
either reapply for license and meet current education requirements and pass
all required examinations or reapply and personally appear before the
Commission to request waiver for reexamination. Any appeals for
reinstatement must be made in writing and appear before the Commission
with their principal broker.




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                                D&D School of Real Estate 2009
                            CHAPTER 1
                                Quiz
Answer all the questions and transfer your answers to the answer sheet included in
this course.



1. According to the Tennessee Code Annotated Title 62 chapter 13
the Tennessee Real Estate Commission has which of the following powers in
the event a licensee violates the law?
      a. Suspend, revoke a real estate license or advise the courts of a recommended
      prison sentence.
      b. Suspend, revoke, reprimand or downgrade a broker to an affiliate broker.
      c. Suspend, revoke, fine and or recommend prison sentencing to the Chancery
      courts.
      d. Fine, revoke or downgrade a licensee.


2. If you have a web page and display listing information belonging to a
different firm than yours, which of the following is true?
      a. You only need to mention the listing broker’s office name.
      b. The maximum number of selection criteria describing the property is five.
      c. Only the listing agent must be recognized in the information displayed.
      d. There are no guidelines for this type of web-based advertising.


3. When an agent receives earnest money along with an offer to purchase
contract, the law states which of the following?
      a. An agent is required to hold the money and is responsible for it’s safety until an
      accepted offer is completed and then turns the offer and the money over to the
      broker at that time.
      b. The agent may hold the money until the next time they are in the office as long
      as it is a reasonable time.
      c. The agent must follow the company policy manual as to the time to turn in the
      money to the broker
      d. The money must be turned over immediately to the Principal Broker




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                                 D&D School of Real Estate 2009
4. Automatic extensions of listing contracts are described in the law. Which
of the following statements is true?
      a. 62-13-312(9) specifically sates that automatic extensions are a violation.
      b. Automatic extensions are allowed as long as the seller agrees in writing before
      the listing is signed.
      c. Automatic extensions must be covered by company policy and clearly specify
      the terms and conditions necessary in the company policy manual according to
      rule 1260-3-.05.
      d. Contracts must have a beginning date but the ending date is not as explicit as
      the beginning date.


5. Agent Jones sold a house and the closing date was set at October 14th. On
September 25th agent Jones moved to a new firm. At closing from whom
does agent Jones receive her commission?
      a. The commission would still be paid by her previous broker to her new broker
      and the agent will then be paid by the new broker as agreed to when she signed on
      with the new broker.
      b. Because agent Jones moved she must negotiate with her previous broker as to
      how much commission she is entitled to since the law clearly shows the broker
      owns the commissions and the agent looses all rights to them when they move.
      c. She will be paid commission by her previous broker according to the terms of
      her employment agreement with that original broker.
      d. The commission paid to an agent can come from any broker so long as they are
      the principal broker of a firm.


6. Agent Bob has done a great job showing the Throckmortons around. They
have found many properties they like but they just couldn’t make up their
minds as to what to buy. After 2 weeks of looking they have decided to go
back to Florida and re-think their move. They are very appreciative of bob
and his time and want to show their appreciation so by giving Bob some
remuneration. Which of the following is correct?
      a. What ever they give Bob can accept.
      b. What they wish to give must pass through Bob’s broker and the broker must
      then give it to Bob
      c. It would e best if Bob only accepted cash.
      d. What they wish to give must pass through Bob’s broker and the broker will
      determine what amount Bob receives.




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                                D&D School of Real Estate 2009
7. According to the Rules of the Tennessee Real Estate Commission who is
responsible to provide in the offer and make the buyer aware that a septic
system inspection is available from the Tennessee Department of
Environment and Conservation?
      a. The agent preparing the original offer
      b. The seller of the property
      c. The listing agent
      d. All agents involved in the transaction bear equal responsibility


8. The fine for not renewing your license on time is
      a. $1500.00 plus $25.00 per month or part there of until license is renewed
      b. $50.00 plus an additional 16 hours of continuing education
      c. $50.00 per month or part they’re of within 60 days of the expiration date
      d. $100.00 per month or part there of within 60 days of expiration date


9. It is the policy of the Real Estate Commission to do which of the
following?
      a. To hold the agent only liable for not carrying the proper errors and omissions
      insurance.
      b. To hold the principal broker only liable for agents not carrying errors and
      omissions insurance.
      c. To fine principal brokers $1,000.00 per agent under T.C.A. 62-13-312(b)(15)
      who are not insured for errors and omissions insurance.
      d. To fine agents only $1,000.00 under T.C.A. 62-13-312(b)(16) for not carrying
      errors and omissions insurance when licensed.


10. The Tennessee Real Estate Commissions policy on failing to renew a
license timely contains which of the following penalties?
      a. Provide proof of compliance with all perquisites or conditions including
      payment of renewal fee.
      b. If license is expired more than 60 days but less than 120 days: pay a penalty fee
      of $50.00 per 30 day period or part thereof from the time the license expired.
      c. If a license expired more than 120 days but less than one year pay an additional
      fee of $150.00 per 30 day period or portion thereof beginning on the 121st day and
      attend one regularly scheduled two-day meeting of the Tennessee Real Estate
      Commission with in 6 months of the date of the consent order.
      d. All of the above.




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                                 D&D School of Real Estate 2009
                            CHAPTER
                                       2
        MANAGING BROKERS
  SUPERVISORY RESPONSIBILITIES
Excerpts from Tennessee Law

       Almost every portion of the law effects the day-to-day operation of a
real estate company and the responsibilities of the principal broker. In this
chapter we will discuss specific areas that directly effect decisions made
daily by a principal broker. Supervising affiliate brokers and brokers who
have placed their licenses under the leadership of a principal broker has
grave responsibilities under Tennessee law. By its definition an independent
contractor has freedoms unlike an employee. Even with these freedoms of
activity the principal broker is directly responsible for the real estate
activities of the licensees that are registered under his/her care. The Real
Estate Commission holds these principal brokers accountable for the actions
of the licensees under them.

       Principal brokers are not specifically defined in the Tennessee code in
any of the chapters referring to real estate brokers. However, the term
‘principal broker’ is used 23 times in the text and the term ‘managing
broker’ is referred to 9 times in the text. By a study of these terms as they
are used in the law and the rules of the commission we will be able to
determine the responsibilities and duties assigned to a principal broker by
the real estate commission of our great state.

      Please remember this is a study of and an interpretation of the law as
understood by the author and is not meant to be a legal interpretation or legal
advice as to the interpretation of the law. Please contact your attorney for
any and all legal advice as to this set of laws presented here.

      Now let’s look at the laws in the order they appear in the Tennessee
code. We will start with 62-13-102 (4); the definition of a broker:
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                              D&D School of Real Estate 2009
      (4)(A) ‘‘Broker’’ means any person who for a fee, commission, finders fee or any other
      valuable consideration, or with the intent or expectation of receiving the same from
      another, solicits, negotiates or attempts to solicit or negotiate the listing, sale, purchase,
      exchange, lease or option to buy, sell, rent or exchange for any real estate or of the
      improvements thereon or any time-share interval as defined in the Tennessee Time-Share
      Act, compiled in title 66, chapter 32, part 1, collects rents or attempts to collect rents,
      auctions or offers to auction, or who advertises or holds out as engaged in any of the
      foregoing;
      (B) ‘‘Broker’’ also includes any person employed by or on behalf of the owner or owners of
      lots or other parcels of real estate, at a salary, fee, commission, or any other valuable
      consideration, to sell such real estate or any part thereof, in lots or parcels or other
      disposition thereof. It also includes any person who engages in the business of charging
      an advance fee or contracting for collection of a fee in connection with any contract
      whereby the person undertakes primarily to promote the sale of real estate either through
      its listing in a publication issued primarily for such purpose, or for referral of information
      concerning such real estate to brokers, or both;

       This paragraph shows us a number of important things. First the
paragraph defines the actions taken that require a real estate license to
receive a fee, commission, finders fee or any other valuable consideration or
with the intent of receiving said from another. Those actions are; listing,
sale, purchase, exchange, lease or option to buy, sell rent or exchange any
real estate or the improvements thereon. Additionally, time share intervals,
collecting of rents or the attempt to collect rents, auctions, offers to auction,
or advertises or holds out as engaged in any of the foregoing. It is necessary
to obtain a real estate license to b involved in any of these activities with the
expectation of receiving compensation.

        It is also important to notice that you must be a broker, not an affiliate
broker to receive a fee for these actions. The definition of an affiliate broker
as noted in 62-13-102 (3) is a person engaged under contract by or on behalf
of a licensed broker to participate in any activity included in subdivision (4).

      Affiliate brokers always act on behalf of their broker. The broker
receives the fee and then shares with the affiliate broker or broker licensed
under the principal broker (this is not specifically noted in the law) as has
been agreed to by these parties.

      In section (B) of the definition covers persons that may be employed
on behalf of an owner real estate that may receive valuable consideration of
some sort for the sale of said real estate. It is important to understand this
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                                    D&D School of Real Estate 2009
definition in the law to begin our study of a principal broker. From here we
will look at the portions of the law and the rules of the Commission that
specifically mention ‘principal broker’ and then ‘managing broker’.


Use of Principal Broker in the law


      62-13-309. Business locations — Display of license — Signs. —
      (a)(1)(A) Each office shall have a real estate firm license, a principal broker, and a fixed
      location with adequate facilities for affiliated licensees, located to conform with zoning laws
      and ordinances.

      Part three of the code is entitled “QUALIFICATIONS AND
LICENSING” and this particular paragraph refers to location of offices and
display of signs. The pertinent reference for our study is that each office
must have a principal broker. Again the duties of the principal broker are not
spelled out here or prior to this mandate for an office but will be as we move
through the law.

      62-13-321. Escrow or trustee account of deposited funds
      Every broker shall, in accordance with rules promulgated by the commission under § 62-
      13-203, keep an escrow or trustee account of funds deposited with the broker relating to a
      real estate transaction. The broker shall maintain for a period of at least (3) years accurate
      records of such account showing:

      (1) The depositor of the funds

      (2) The date of deposit;

      (3) The date of withdrawal;

      (4) The payee of the funds; and

      (5) Such other pertinent information as the commission may require.
      [Acts 1988, ch. 919, § 1.]

       This tenant of the law does not use either of the terms principal broker
or managing broker but just the term broker. Based on the contents it is fair
to assume that the law is referring to the principal broker of the office. The
instructions are clear as to the responsibility of the principal broker as to
escrow funds and records. Additionally the rules of the Commission further
clarify responsibilities of the principal broker.
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                                     D&D School of Real Estate 2009
      1260-2-.09 DEPOSITS AND EARNEST MONEY.
      (1) Each broker shall maintain a separate escrow account for the purpose of holding any
      funds which may be received in his fiduciary capacity as deposits, earnest money, or the
      like.
      (2) An affiliate broker shall pay over to the broker with whom he is under contract all
      deposits and earnest money immediately upon receipt.
      (3) Brokers are responsible at all times for deposits and earnest money accepted by them
      or their affiliate brokers, regardless of whether such funds are actually held by some other
      person or firm.
      (4) Where a contract authorizes a broker to place funds in an escrow or trustee account,
      the broker shall clearly specify in the contract:
      (a) the terms and conditions for disbursement of such funds; and
      (b) the name and address of the person who will actually hold such funds.
      (5) A broker may properly disburse funds from an escrow or trustee account:
      (a) upon a reasonable interpretation of the contract which authorizes him to hold such
      funds;
      (b) upon securing a written agreement which is signed by all parties having an interest in
      such funds, and is separate from the contract which authorizes him to hold such funds;
      (c) at the closing of the transaction;
      (d) upon the rejection of an offer to purchase, sell, rent, lease, exchange, or option real
      estate;
      (e) upon the withdrawal of an offer not yet accepted to purchase, sell, rent, lease,
      exchange or option real estate.
      (f) upon filing an interpleader action in a court of competent jurisdiction; or
      (g) upon the order of a court of competent jurisdiction.
      (6) Funds in escrow or trustee accounts shall be disbursed in a proper manner without
      unreasonable delay.
      (7) No postdated check shall be accepted for payment of a deposit or earnest money,
      unless otherwise provided in the offer.
      (8) Earnest money shall be deposited into an escrow or trustee account promptly upon
      acceptance of the offer, unless the offer contains a statement such as “Earnest money to
      be deposited by:”.
      Authority: T.C.A. §62-13-203. Administrative History: Original rule certified June 7,
      1974. Repealed and refiled March 3, 1980; effective April 27, 1980. Amendment filed
      September 30, 1980; effective December 15, 1980. Amendment filed January 21, 1983;
      effective February 22, 1983. Amendment filed April 17, 1985; effective May 17, 1985.

       This rule is of utmost importance to the principal broker even though
it does not single out the principal broker or the managing broker in the text.
This responsibility is the task of the principal broker. Paragraph (2) instructs
the affiliate brokers and brokers licensed under the principal broker to
“immediately” turn funds over to the principal broker. This does not leave
any room for an agent to hold funds for any period of time, including
overnight. The earnest money is to be immediately turned over to the
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                                    D&D School of Real Estate 2009
principal broker. If an offer is written after normal business hours, every
principal broker should have a policy in place for agents to turn over
deposits and earnest monies to the principal broker. The policy could be as
simple as to go the broker’s house and turn the money over to her/him or
have a policy in place for an agent to leave the earnest monies or deposits in
possibly a deposit safe with instructions as to the contract the deposit refers
to in the office. Regardless of the policy or procedure the rule does require
this to take place regardless of the time of day or the day of the week.

       Paragraph (3) addresses the responsibility of the funds during the
executory period of the contract. Clearly the responsibility for the funds is
the principal broker’s of the firm that accepted the earnest money or deposit.
If the deposit is a check and made out to another real estate firm, or the
escrow account of the closing agent, the rule does not shift the responsibility
to this other person. Let’s look at a scenario: in your market place it is the
local custom for the listing broker to hold all deposits that come with offers
to purchase on their listings so the selling office gives the earnest monies
over to the listing office. Through the process the deal falls through and the
listing broker determines under paragraph (5) of this rule that the purchaser
has defaulted and turns the deposit over to the seller that listed the property
with him/her. The buyer does not agree with this move and has but one
option under this rule, which is to sue the selling broker that accepted the
original check. This broker will then need to sue the listing broker who
actually disbursed the funds. Seems the best policy would be to hold all
funds that are accepted by you as the principal broker or accepted by any of
your sub-agents until closing.


      62-13-323. Escrow account — Waiver. — (a) The principal broker of a real estate firm
      that does not engage in activities that require the acceptance of any funds belonging to
      others may receive from the Tennessee real estate commission a waiver from the
      provisions of § 62-13-321.
      (b) Upon receipt of a waiver by the Tennessee real estate commission pursuant to
      subsection (a), a principal broker may close the real estate firm’s escrow account.
      (c) The principal broker of a real estate firm authorized pursuant to this section to operate
      without an escrow account may accept funds belonging to others subject to the following:
      (1) The principal broker shall open an escrow account within one (1) business day of
      accepting such deposit, and deposit such funds into the newly opened escrow account on
      the same day; and



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                                    D&D School of Real Estate 2009
       (2) The principal broker shall notify the Tennessee real estate commission within one (1)
      business day after opening a new escrow account and shall provide the following
      information:
      (A) The name and address of the bank where the new escrow account was opened;
      (B) The name of the new escrow account; and
      (C) The account identification number of the new escrow account.
      (d) A principal broker who opens an escrow account pursuant to subsection
      (c) Shall acknowledge responsibility to operate under all the requirements of
      § 62-13-321.
      (e) No principal broker may obtain a waiver pursuant to subsection (a) for the same real
      estate firm more than once each license renewal period. [Acts 2002, ch. 553, §1]

       The principal broker is mentioned in sections, a, b, c, d and e of this
portion of the code. Specifically this section is referring to a waiver from the
commission if the office is not accepting funds belonging to another. The
principal broker can close the escrow account once the waiver is obtained. It
further instructs the principal broker as to the process necessary in the event
the accepting of funds becomes necessary after receiving the waiver.

      Again we are finding and uncovering the duties of the principal
broker.

       Now we will move from the law to the rules of the commission and
their mention of a principal broker.

      1260-1-.04 LICENSES.
      (1) No principal broker shall permit an affiliate broker (or broker) under his supervision to
      engage in the real estate business unless the affiliate broker (or broker) has been issued a
      valid license.
      (2) Each licensee is individually responsible for satisfying all legal requirements for
      retention of his license, including, but not limited to, paying appropriate fees; and
      completing real estate education.
      (3) Each licensee in a firm must obtain any desired change of affiliation or status through
      the firm’s principal broker.
      (4) All Tennessee licensees holding nonresident licenses issued in other states shall file
      copies of such licenses in the Office of the Tennessee Real Estate Commission and with
      their principal broker.

       First off we see here the mention of supervision of affiliate brokers
and brokers. This of course refers back to the definition of affiliate brokers
and brokers above. First the principal broker must assure the agent has a
valid license. Paragraph (2) places the responsibility of satisfying the legal
requirements of license retention on the individual licensee. This may seem
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                                    D&D School of Real Estate 2009
to be a conflict of responsibilities between the agent and their broker but
once the broker is assured the licensee has a valid license and they hire them,
it then is the individual’s responsibility to maintain the license.

       Paragraph (3) places responsibility for any change of licensure on the
principal broker and paragraph (4) requires all nonresident licensees to file
copies of their out-of-state license with their principal broker and the
Tennessee real estate commission. We can additionally glean from this
section that the records of licensure are the responsibility of the principal
broker as far as the real estate commission is concerned. All other records
are also the principal broker’s responsibility.

      1260-1-.12 FEES. The following fees shall apply:
      (1) For each examination, a fee to be paid to the testing vendor as set by state contract;
      (2) For the issuance of an original license, a fee to be paid to the Commission of one
      hundred dollars ($100.00);
      (3) For each renewal of a license, a fee to be paid to the Commission of eighty dollars
      ($80.00);
      (4) A fee to be paid to the Commission for the following: (a) Change of firm address, fifty
      dollars ($50.00);
      (b) Change of Principal Broker, twenty-five dollars ($25.00);

       This rule applies to fees due to the commission and in paragraph (4)
specifically refers to the fee for changing the principal broker of a firm.

      1260-2-.01 SUPERVISION OF AFFILIATE BROKERS.
      (1) No licensee shall engage in any real estate activity in any office unless there is a
      principal broker who devotes his fulltime to the management of such office.
      (2) No principal broker shall engage a licensee who lives more than fifty (50) miles from
      the firm office, unless the principal broker demonstrates in writing to the Tennessee Real
      Estate Commission’s satisfaction that the distance involved is not unreasonable and that
      adequate supervision can be provided.
      (3) A licensee may be engaged only by a principal broker who is: (a) engaged primarily in
      the real estate business; and (b) accessible during normal daytime working hours.

      The rules are now getting to the meat of the law and spelling out the
principal broker’s responsibilities as to supervision of licensees working
under his authority. First an office must have a ‘full time’ principal broker.
This broker must devote fulltime to managing the office. Next the principal
broker may not hire a licensee that lives more than 50 miles from the office
without demonstrating in writing to the commission that supervision can be
provided over this distance. It seems that the Commission is becoming more
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                                   D&D School of Real Estate 2009
lenient on this rule. There have been a number of cases in the past year
where the Commission has allowed an agent to live outside of this limit
when they have come before the Commission with their principal broker and
shown that supervision will not be limited by the distance lived from the
office. Thirdly a licensee can only be under contract to one principal broker
at a time that is primarily engaged in the real estate business and is
accessible during normal working hours.

      1260-2-.02 TERMINATION OF AFFILIATION.
      (1) Any licensee wishing to terminate his affiliation with a firm shall secure his release from
      the firm. The principal broker’s supervisory responsibility shall terminate upon his signing
      of the release form. Within ten (10) days after the date of release, the licensee shall
      complete the required administrative measures for change of affiliation, temporary
      retirement, or (if ineligible for temporary retirement) placement in ‘inactive‘ status. Upon the
      signing of a release by the principal broker for a change of affiliation, the licensee shall not
      engage in any real estate transactions nor shall he act under a contract with another firm
      until completion and transmittal to the commission of the change of affiliation form,
      accompanied by the proper fee.
      (2) When a licensee terminates his affiliation with a former firm, he shall neither take nor
      use any property listings secured through the firm, unless specifically authorized by the
      principal broker.
      (3) The Commission will not intervene in the settlement of debts, loans, draws, or
      commission disputes between firms, brokers and/r affiliates. Upon demand by a licensee
      for his release from a firm, it shall be properly and promptly granted by the principal broker.

       This section spells out the specific requirements for terminating a
licensee. First the licensee must secure a release from the principal broker.
The principal broker’s supervisory responsibility terminates on the signing
of the release form. Section (2) clearly spells out that all listings are the
property of the principal broker and that they stay with the principal broker
unless he/she chooses to release them. Paragraph (3) relieves the real estate
commission of duties of intervention in disputes over commissions, fees
debts loans etc. between the principal broker and the licensee. If these
disagreements cannot be settled between the parties then they must be taken
to the proper courts in the state, not the real estate commission.

      1260-2-.12 ADVERTISING.
      (1) All advertising, regardless of its nature and the medium in which it appears, which
      promotes the sale or lease of real property, shall conform to the requirements of this rule.
      (2) General Principles
      (a) No licensee shall advertise to sell, purchase, exchange, rent, or lease property in a
      manner indicating that the advertiser is not engaged in the real estate business.

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      (b) No advertisement by a licensee shall direct responses to only a post office box number,
      telephone number, and/or street address.
      (c) Every licensee shall affirmatively and unmistakably indicate in any advertising that he is
      a licensed real estate agent.
      (d) All licensees shall advertise under the firm name offers to purchase, sell, rent, or lease
      any property. All advertising must be under the direct supervision of the principal broker
      and must list the firm telephone number.

       1260-2-.12 covers responsibilities in advertising. Paragraph (1)(d)
state advertising must be under the direct supervision of the principal broker.
The Real Estate Commission will hold the principal broker responsible for
misrepresentative advertising according to this section of the commission’s
rules. According to the “Frequently asked questions” section of the official
manual of the Commission, section J the company name must appear on all
pages of any advertising including the company name, and the firm phone
number. This includes internet advertising.

      66-32-107. Time-share estate management. — The time-share instruments for a time-
      share estate program shall prescribe reasonable arrangements for management and
      operation of the time-share program and for the maintenance, repair and furnishing of
      units, which shall ordinarily include, but need not be limited to, provisions for the following:
      (14) The managing agent shall be a licensed real estate firm or bonded agent. The
      principal broker/agent of the firm shall have control of the accounts required in subdivision
      (12), and shall enter into a tri-party agreement by and between the commission, the
      managing agent, and the depository institution, providing for the authority of the
      commission to access and inspect the account records at all times on behalf of the
      condominium homeowners’ association.

      66-32-107 is part of the time share regulations put forth by the
commission. Paragraph (14) states the principal broker/agent shall control
accounts required in paragraph (12). Those accounts are, the escrow and
reserve accounts.


Use of “Managing Broker” in the law

       The term managing broker is mentioned 9 times in the code. Below
are the references to those areas.
      62-13-102 Chapter definitions. As used in this chapter, unless the context otherwise
      requires:




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                                     D&D School of Real Estate 2009
      (7) “Designated agent” refers to a licensee who has been chosen by such licensee’s
      managing broker to serve as the agent of an actual or prospective party to a transaction, to
      the exclusion of other licensees employed by or affiliated with such broker.

      Since there is no definition of ‘managing broker’ or ‘principal broker’
we must assume that this use of the term ‘managing broker’ refers to the
principal broker as mentioned in62-13-309 above.


       Part four of the law, is titled ‘REPRESENTATION BY REAL
ESTATE AGENTS’. Section 62-13-102 are definitions and (7) defines a
designated agent and that said designated agent can only be so designated by
his/her managing broker (principal broker).

      62-13-406. Designated broker — Managing broker. —
      (a) A licensee entering into a written agreement to represent any party in the buying,
      selling, exchanging, renting or leasing of real estate may be appointed as the designated
      and individual agent of this party by the licensee’s managing broker, to the exclusion of all
      other licensees employed by or affiliated with such managing broker. A managing broker
      providing services under the provisions of the Tennessee Real Estate Broker License Act
      of 1973 shall not be considered a dual agent if any individual licensee so appointed as
      designated agent in a transaction, by specific appointment or by written company policy,
      does not represent interests of any other party to the same transaction.
      (b) The use of a designated agency does not abolish or diminish the managing broker’s
      contractual rights to any listing or advertising agreement between the firm and a property
      owner, nor does this section lessen the managing broker’s responsibilities to ensure that
      all licensees affiliated with or employed by such broker conduct business in accordance
      with appropriate laws, rules and regulations.
      (c) There shall be no imputation of knowledge or information among or between clients,
      managing broker and any designated agent(s) in a designated agency situation.

       Under this section of the code the managing broker’s (principal
broker) specific relationships under designated agency are spelled out. In the
above section 62-13-102(7) we learned a designated agent is appointed by
the managing broker. In this section we find that that appointment may
happen in one of two ways, by specific appointment or by company policy.
In each individual situation the managing broker may appoint a designated
agent. The other situation would be covered in the company policy manual
where designated agency is addressed. The policy may be that all listing
agents are designated agents of the seller. The policy could be that all agents
that have a buyer are specifically designated as buyer agents. Whatever the
policy may be the law clearly addresses the legality of the situation.
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                                    D&D School of Real Estate 2009
       The next point made is that the managing broker (principal broker) is
not considered a dual agent when agents under his/her licensure are
appointed as designated agents. The managing broker is not relieved of any
of their responsibilities to clients even though they are not considered duel
agents. The managing broker is further addressed as responsible for the
actions of licensees under their employ as to the laws, rules and regulations.

       The rule then addresses a very important policy as to imputed
knowledge. Imputed knowledge is a legal term that generally says that any
knowledge known by a sub-agent is imputed to the broker; the broker knows
everything the agent knows whether it has been relayed to the broker or not.
Under Tennessee law there is no imputation of knowledge or information
between the agent, broker or clients in a designated agency situation.
Because of this ruling the broker can have an agent representing a buyer and
a seller in the same transaction and not be guilty of passing knowledge
known or supposedly known because of imputation, between parties. This
law allows licensees in Tennessee much broader access to buyers and sellers
than other states allow. Tennessee is a leader in this type of representation.
This not only helps the agents in Tennessee but also allows better service to
buyers and sellers in residential transactions.

      62-13-407. Liability. — A client or other party to whom a real estate licensee provides
      services as an agent, subagent or facilitator shall not be liable for damages for the
      misrepresentations of the licensee arising out of such licensee’s services unless the client
      or party knew, or had reason to know, of the misrepresentation. This section shall not limit
      the liability of a licensee’s managing broker for the misrepresentations of the managing
      broker’s licensees.

       Licensees providing services here protect client liability from
misrepresentations. This protection is only if the client did not know of the
misrepresentations or had no reason to know of the misrepresentation.
       This protection is offered only to the client, not the managing broker
(principal broker) under these circumstances. The managing broker will be
held liable for the actions of licensees under their employment. There is
however mention of this in 62-13-310(c) stating;

      c) Any unlawful act or violation of any of the provisions of this chapter by any affiliate
      broker may not be cause for the suspension or revocation of the license of the broker with
      whom the affiliate broker is affiliated

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                                    D&D School of Real Estate 2009
      There is no further explanation of this segment of the code. However
below in section 62-13-312(15):

      In the case of a licensee, failing to exercise adequate supervision over the activities of any
      licensed affiliate brokers within the scope of this chapter;

       A principal broker is liable for revocation, suspension or reprimand;
have their license down graded to affiliate broker, or be fined by the
commission (rule 1260-2-.32 civil penalties) due to acts of the licensees
employed by them. The maximum fine is $1,000.00 per violation of the
sections of 62-13-312. A further discussion of this area of the law was
covered in chapter one of the course. This section shows the areas and the
disciplinary actions available to the real estate commission. The principal
broker of the office should be keenly aware of the tenets in this section and
the potential actions that can be taken. This law is covered in Chapter one of
this course.

       We have attempted to cover specific areas of the Tennessee Code in
this section that pertain specifically to the principal broker of a firm. There
are other areas of the law that a principal broker must be familiar with as
well. He/she should be familiar with the whole law and other laws that have
to do with the daily operation of a real estate office in this state. For
example, in the past few years the legislature passed law that deals with the
operation of a real estate company. Below is a copy of that legislature.


              Chapter No. 671] PUBLIC ACTS, 2006 1
              CHAPTER NO. 671
              SENATE BILL NO. 3667
              By Fowler
              Substituted for: House Bill No. 2603
              By Russell Johnson
              AN ACT to amend Tennessee Code Annotated, Title 47, Chapter 18 and Title 66,
              Chapter 5, relative to sales of residences.
              BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF
              TENNESSEE:
              SECTION 1. Tennessee Code Annotated, Section 47-18-104(b), is amended by
              adding the following language as a new, appropriately designated subdivision:
              ( ) (A) Knowingly advertising or marketing for sale a residence as having more
              bedrooms than are permitted by the residence's subsurface sewage disposal
              system permit, as defined in § 68-221-402, unless prior to the execution of any


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                                    D&D School of Real Estate 2009
               sales agreement the permitted number of bedrooms is disclosed in writing to the
               buyer.
               (B) If a residence is marketed for sale as having more bedrooms than are
               permitted by the subsurface sewage disposal system permit and no disclosure of
               the actual number of bedrooms permitted occurs prior to the execution of a sales
               agreement, then the buyer shall have the right to rescind the sales agreement and
               may recover treble damages as provided in § 47-18-109.
               (C) A subsurface sewage disposal system permit issued in the name of the owner
               of the residence shall serve as constructive notice to that owner of the residence
               and that owner's real estate agent for the purpose of establishing knowledge as to
               the number of bedrooms of the residence for the purpose of finding a violation of
               this subdivision.
               SECTION 2. This act shall take effect July 1, 2006, the public welfare requiring it.

       As is mentioned in section (C) above, the disposal system permit may
serve as constructive notice to the owner or the owner’s real estate agent for
establishing knowledge as to the number of bedrooms for this purpose. It
does not specifically give the responsibility of establishment to the real
estate agent but in the event of a suit there is a good chance the real estate
agent will be liable. This may fall under the definition of ‘adverse facts’ in
section 62-13-102(2)

               62-13-102(2) Chapter definitions. — As used in this chapter, unless the context
               otherwise requires:
               (2) ‘‘Adverse facts’’ means conditions or occurrences generally recognized by
               competent licensees that have negative impact on the value of the real estate,
               significantly reduce the structural integrity of improvements to real property or
               present a significant health risk to occupants of the property;

This law section may further fall under knowledge that an agent ‘should
have known’ as a professional if taken to the courts.

      As we learned in chapter one, the below rule change by the
Commission becoming effective February 16, 2008 addressed this law as
enacted by the legislature.

       1260-2-.37 SEPTIC SYSTEM INSPECTION LETTERS. A licensee preparing
       an offer to buy shall provide in the offer and make the buyer aware that, for a fee,
       a septic system inspection letter is available through the Tennessee Department of
       Environment and Conservation, Division of Ground Water Protection.
Authority: T. C. A. §§ 62-13-203 and 62-13-403. Administrative History:
Original rule filed December 3, 2007; effective February 16, 2008.


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                                    D&D School of Real Estate 2009
       As we have seen in this section the duties of the principal broker are
far reaching. The liability falls directly on the principal broker so knowledge
is a most valuable tool for the principal broker. Information from the Real
Estate Commission is readily available. A real estate attorney should be
engaged on a regular basis and information from other sources such as
Tennessee Association of Realtors, federal agencies like Fair Housing and
ADA are available and should be referenced on a regular timetable.




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                              D&D School of Real Estate 2009
                              CHAPTER 2
                                  Quiz
Answer all the questions and transfer your answers to the answer sheet included in
this course.

1. What are the actions that require a licensee to receive a fee under the
Tennessee Real Estate Law?
      a. Listing, sale, purchase, exchange, lease or option to buy, sell, rent or exchange
      any real estate or the improvements thereon with the intent of receiving a fee for
      said services.
      b. Listing, sale, purchase, exchange, lease or option to buy, rent any real property
      for another with the intent of receiving of receiving a fee for said services.
      c. Any transaction that would transfer the deed to real property from one unrelated
      party to another.
      d. All of the above.


2. Under T.C.A. 62-13-102(4) who is entitled to receive a fee for services
      a. All licensed practitioners.
      b. The principal broker of the office as registered with T.R.E.C.
      c. Both brokers and affiliate brokers.
      d. Brokers only unless specific direction by the principal broker to allow another
      licensee to receive a commission.


3. Affiliate broke Sue just wrote a contract for the sale of a listing that was
listed by an agent in a different office. She completed the contract at 4:30
P.M. and was 30 minutes from the listing office and 45 minutes from her
own office. She wanted to get the offer to the listing agent A.S.A.P. so she
decided to head that direction first. After presenting the offer to the listing
agent she went to her own office knowing it was closed. What should she do
with the earnest money check she collected from the buyer?
      a. She can hold the check until her office opens tomorrow and then turn it in to the
      broker.
      b. If the listing agent requested that his office hold the earnest money then she
      should give it to the listing agent and get a copy of the check.
      c. If her office has no policy as to how to pay over earnest money deposits after
      office hours she should take it to her broker’s house so she can turn it over to her.
      d. In most cases she will keep the check in the file until the offer is accepted.


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                                 D&D School of Real Estate 2009
4. Affiliate broker Bob wrote an offer on a listing from another office. Bob
called the listing agent to let her know he was writing the offer and she told
Bob that the policy of her office was to hold the earnest money deposit on
contracts on their listings. Bob had the seller make the check out to the
listing office and delivered it to that office along with the offer. After the
offer was accepted, then it subsequently fell through. The broker of the
listing office determined that under the contract the buyer was in default and
passed the earnest money to the seller. The buyer did not agree with this
interpretation and is intending to sue. Which of the following is most liable
under the law?
      a. The listing broker that disbursed the funds.
      b. The selling agent that received the funds
      c. The listing broker and the selling broker equally
      d. The selling broker whose agent accepted the funds on his/her behalf.

5. Under what circumstances, if any, does a principal broker of a firm not
have to have an escrow account?
      a. Upon receiving a waiver from T.R.E.C.
      b. There is no provision for eliminating the necessity for an escrow account for
      principal brokers.
      c. In certain conditional circumstances as directed by the Rules of the
      Commission.
      d. A broker principally engaged in residential real estate can appoint a closing
      company to be the escrow agent in all transactions thereby deferring the need for
      an escrow account.

6. ABC Real Estate Services is a small company owned by Sally Smith who
does not have a broker’s license. Sally Hires Janet Johnson, her close friend
as the principal broker of her small office. Janet is a full time employee of
the U.S. Postal Service located right next to Sally’s real estate office. Sally
has no intention of hiring any additional agents, her business works quite
well for her working alone. Is the arrangement between Sally and Janet
recognized as acceptable under the law?
      a. This fulfills all the tenants of the law.
      b. This is a breach of the rules under 1260-2-.01(1)
      c. Due to the office location being in close proximity to the Post Office the
      Commission would accept this arrangement.
      d. As long as Sally does not hire more than 4 agents the broker may be a part time
      person.




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                                 D&D School of Real Estate 2009
7. Agent Andrew Listed the Smith’s house. Three weeks later Andrew
showed the house to the Jones family. During the showing Andrew
mentioned that the house was on a septic tank and told the Jones’ that the
system was quite adequate for the home. The Jones purchased the property.
Before closing the Jones had a septic inspection and found the tank was not
of adequate size for the 4-bedroom house. They wanted to rescind the
contract but the seller refused to return the deposit. The seller claimed that
the septic system was just fine and there was never a problem since they
added the fourth bedroom. Who is liable in this case?
      a. The seller should have disclosed that the septic system was inadequate and are
      therefore liable.
      b. The broker, the seller and the agent are liable
      c. The agent is liable and the broker since the agent misrepresented the system to
      the buyer.
      d. It was the buyer’s responsibility to check out all systems so they may not hold
      any other party liable.

8. Which of the below statements is the correct definition of designated
agent?
      a. The listing or selling agent that represents a single party in a transaction.
      b. An agent ‘designated’ by the principal broker to represent both parties in a
      transaction.
      c. A self appointed broker representing a party to a transaction
      d. A licensee who has been chosen by the managing broker to serve as the agent
      of an actual or prospective party to a transaction to the exclusion of other
      licensees affiliated with such broker.

9. John has decided to move from his current office to a different office. He
has arranged for his new cards to be printed, produced his announcement
letter to send his customers and clients and has picked out his new desk at
the new office. He is now ready to tell his current broker of his plans to
move. Which of the following is true?
      a. John’s existing broker must sign the T.R.E.C. one form and allow John to move
      immediately.
      b. John’s existing broker has 10 days from the time of request to sign the T.R.E.C.
      one form for John to move to a new firm.
      c. John is in breach of the law by doing the things he has done without first
      notifying his current broker.
      d. John does not need to notify his current broker until he and his new broker sign
      the T.R.E.C. one form and send it to the state with the fee.




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                                 D&D School of Real Estate 2009
10. Postdated checks are acceptable with contracts under which of the
following circumstances?
      a. Postdated checks are never allowed since contract law requires ‘consideration’
      for a contract to be valid.
      b. No postdated check shall be accepted for payment of a deposit or earnest
      money unless otherwise provided for in the offer.
      c. If the buyer wants to offer a postdated check for their convenience the seller
      must accept it
      d. Postdated checks are always acceptable under Commission Rule 1260-2-.09.




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                                 D&D School of Real Estate 2009
                                   CHAPTER
                                               3
      CONTRACTS BASICS AND THE
         LISTING CONTRACT
Contract Law Basics

       A contract is a voluntary agreement or promise between legally
competent parties to perform of to refrain from performing some legal act
and it must be supported by legal consideration. Contracts are expressed in
writing or orally, or they are implied. For our purposes in real estate we will
only discuss express contracts and only those expressed in writing since the
statute of frauds requires all contracts to be in writing to be enforceable in
court.

      29-2-101. Writing required for action.

      (a) No action shall be brought:

              (1) To charge any executor or administrator upon any special promise to answer
              any debt or damages out of such person's own estate;
              (2) To charge the defendant upon any special promise to answer for the debt,
              default, or miscarriage of another person;
              3) To charge any person upon any agreement made upon consideration of
              marriage:
              (4) Upon any contract for the sale of lands, tenements, or hereditaments, or the
              making of any lease thereof for a longer term than one (1) year; or
              (5) Upon any agreement or contract which is not to be performed within the space
              of one (1) year from the making of the agreement or contract; unless the promise
              or agreement, upon which such action shall be brought, or some memorandum or
              note thereof, shall be in writing, and signed by the party to be charged therewith,
              or some other person lawfully authorized by such party. In a contract for the sale
              of lands, tenements, or hereditaments, the party to be charged is the party against
              whom enforcement of the contract is sought.

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                                   D&D School of Real Estate 2009
The above excerpt from Tennessee Code, particularly paragraph (4) supports
the necessity for real estate contracts to be in writing to be enforceable in
court.
       Contracts are bilateral or unilateral. In most cases our contracts in
today’s real estate business are bilateral meaning that all parties to the
contract have made promises to the other party in exchange for a return
promise. We will only deal with bilateral contracts in the context of this
lesson.
       Contracts further are executory or executed. A contract becomes a
contract when the parties have agreed to all the tenants of the contract in
writing. From this time of acceptance, which is when an offer to purchase
becomes a contract, the contract is said to be executory. The parties have
agreed to all the promises but they are not yet fulfilled. Performance by one
or more of the parties is required to complete the promises in the contract.
Once all the promises are accomplished the contract is ready to be
completed. Once completed it becomes an executed contract. It is fully
performed and in the case of a sale of real estate the deed has been
exchanged for what ever the valuable consideration was that was promised
in the contract.

There are elements necessary to assure we have a valid contract. Those
elements are:
OFFER AND ACCEPTANCE
       OFFER made by one party (offeror) with a request for something in
exchange for the promises made in the offer.
       ACCEPTANCE is a promise by the second party (offeree) to be
bound by the exact terms proposed by the offeror.
REJECTION
       The offer may be rejected, revoked or not answered (failure to accept)
within the time frame allowed by the contract. Remember, a counter offer is
a rejection of the original offer by the offeree and therefore relieves the
offeror from any obligation that may have been promised in the offer.
CONSIDERATION
       Contacts must have some sort of consideration to be valid. Valuable
consideration is something of value. In real estate contracts we normally
receive an earnest money deposit from the original offeror in the form of a
check or possibly cash. We must realize that anything of valued can and
must be accepted from the offeror that has value. A watch, car title or even
livestock would be considered ‘valuable consideration’ and could validate a
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contract under this necessary element. It would be wise to further explain
how the consideration will be cared for during the executory period of the
contract. Most real estate practioners are not prepared to handle valuable
consideration other than that which can be deposited in an escrow account.


LEGALLY COMPETENT PARTIES.
      Parties to the contract must be of legal age and of sufficient mental
capacity to understand the actions and consequences of said contract.
Sufficient mental capacity includes the party is not under the influence of
drugs or any chemical substances as well as any mental health condition that
would prohibit them from making an informative decision. Reality of
consent is a legal term meaning the party is able to make a prudent and
knowledgeable decision and that they weren’t deprived by a mistake,
misrepresentation, fraud, duress or undue influence. Any of these situations
could render the contract as in valid or voidable by one of the parties.


Contracts are further affected by the following conditions
DISCHARGE
      Contracts may be discharged or terminated by any of the following:
              Performance of the contract : our best choice meaning the deal will be closing.
              Assignment: Contracts may be assigned or the rights may be transferred to
              another party (Assignee).
              Breach of a contract: Default by either the buyer or the seller could be a breach of
              the contract. If there is a breach the other party have three options.
                      Rescind the contract and give the valuable consideration back to the party
                      that deposited it.
                      Sue the other party for specific performance, that is force them to
                      complete the contract.
                      Sue the other party for compensatory damages
                      In the case of a seller in a real estate transaction there is an additional
                      option and that is to declare the contact forfeited and retain the earnest
                      money.
              Statute of Limitations: This is a time frame in which to enforce the terms of the
              contract. This will vary under state law from contract to contract.




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                                     D&D School of Real Estate 2009
Listing Contracts

       The first contract to discuss is the listing contract. This is the
beginning of a transaction which we all hope leads to the consummation of a
sale and the paying of a commission. We will use the current Tennessee
Association of Realtors contract as our example for discussion. There is no
contract required under Tennessee Real Estate law. This seems to be the
most commonly used contract in the state. Since this contract is between the
broker and the seller there is not the need to have a standardized contract in a
given area however, having a standardized contract does limit the need for
interpretations throughout the industry.
       First we will look at the different types of listing contracts:

Exclusive right to sell listing contract: This is an exclusive contract
meaning that the seller has hired one broker to market the seller’s property.
In the event of a sale, regardless where the buyer came from, the broker is
entitled to a commission. The sale must be accepted during the time of the
contract. The closing may not occur until after the contract time has expired
but the acceptance happened within the time frame so the commission was
earned. Most listing contracts indicate the commission is earned by the
broker for producing a ready, willing and able buyer at terms acceptable to
the seller. Tradition is such that we wait until the closing to collect the
commission even though it is actually earned at an earlier date. This is the
best listing contract for both the seller and the broker as it commits both
parties to work towards the closing of a sale. The broker should work hard
since he/she knows that their hard work will be rewarded in the event of a
sale no matter who produces the buyer. The seller can also have more
confidence in their broker and expect the marketing effort to be a 100%
effort since the commission is assured in the event of a sale.

Exclusive agency listing contract: In this listing agreement there is one
broker hired to market the property and is entitled to a commission if the
buyer is procured by the broker or any other broker however, the seller
reserves the right to procure the buyer themselves and not pay a commission.
The use of this contract has grown in the recent past even though it restricts
the efforts of the broker. The seller may feel they can out sell the
professional but the odds are against them ant the marketing effort may be
limited due to the competition the seller represents.

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Open listing: This is not really a contract. The seller agrees to pay a
commission to who ever produce a buyer. There is no marketing effort on
the part of any broker, which is certainly a detriment to the seller. Our
primary work in the real estate industry is to market properties. To not take
advantage of a professional approach to marketing but still agree to pay a
commission is not a reasonable position for a seller to put their self in. In the
event an agent does work in this area it would be wise to get a commission
payment agreement from a seller prior to presenting their property to a
prospective purchaser.

Contract terms: A few more basics from contract law are in order here.
     Contract law and Tennessee law require all listing contracts to have a
     beginning and ending date with no automatic renewal clauses.
             62-312-(9)
              (9) Using or promoting the use of any real estate listing agreement form, real
             estate sales contract form, or offer to purchase real estate form which fails to
             specify a definite termination date;

      Contract law further requires that in order for a contract to be valid all
      the parties to the contract must sign it. This requires the principal
      broker of the office and the sellers to sign the contract to be valid.
      This is not a standard practice in Tennessee but should be.

      Statute of frauds requires the contract to be in writing.

      State and Federal law requires certain disclosures; lead base paint,
      property condition report, synthetic stucco, septic tank, exterior
      injection well and others.

      State law further requires agents to disclose any adverse conditions
      that may be present.

             62-13-403(2)
             (2) Disclose to each party to the transaction any adverse facts of which licensee
             has actual notice or knowledge

Using the Exclusive right to sell listing contract located in Appendix D the
following discussion will go line by line through the contract.



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                                  D&D School of Real Estate 2009
Lines one through 4
      Her we list the broker (listing company) and address; the seller owner
      and the address.

Lines 5 through10
      A seller a grant the broker the exclusive right to sell the described
      property; the property address (sufficient legal description in
      Tennessee) and additionally the deed book and page the property is
      recorded in the county it is located in.

Line 11
      The listing price.

Line 12
      Term or length of the contract. Contracts must have a beginning and
      ending date to be valid.

Lines 13 through 19
      This is commonly referred to as the “broker protection clause”. This
      paragraph insures the broker’s commission if the property is sold
      during the time agreed to (fill in on line 13) to any party directly or
      indirectly introduced to the party during the listing period. There are
      no limits as to how the proof of introduction is to be obtained or if
      there is a need for any records to prove introduction. To prove the
      introduction it would be wise for an agent to keep a list of all parties
      the property was shown to during the listing period. This may be the
      proof needed to enforce this paragraph in a court of law. There is
      further a cancellation fee the broker may charge to release the seller
      from this agreement. The last sentence negates the entire clause
      should the property be listed with another licensed broker.

Line 20
      Predetermined delivery date of the property by the seller.




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Line 21
      Financial terms acceptable to the seller i.e. type of financing seller
      would accept. Any financing not pre printed must be added on line 22
      such as owner financing.
Lines 23 through 41
      This clause covers fixtures and personal property included in the sale
      of the property. The preprinted list in this clause is fairly extensive
      and inclusive of those articles normally included in the sale of
      property. Additional items may be added on lines 33 and 34 and items
      that will not be included should be listed on lines 36 and 37. To assure
      no ambiguity any items listed in lines 23 through 31 should be
      stricken as well as listed on lines 36 and 37. Lines 38 through 41
      cover any leased items that may be on the property. It is important the
      agent be sure this list is accurate as to any leased items for the benefit
      of both the seller and the buyer. Line 41 clearly makes it the
      responsibility of the seller to pay the balance on any items where the
      lease is not assumable. This also then assumes that if assumable the
      seller will have no additional responsibility to the leasing company for
      any item. It would be a wise agent that directs sellers to assure
      themselves as to the ability to assume of any leases and if they would
      have any responsibility after the assumption.

Lines 42 through 59
      Compensation is covered in this clause that makes it a very important
      clause in for most agents. First we have blanks for the amount of
      commission and whether it will be a percentage of the sales price or a
      flat fee. Both types of payment are legally accepted. The reason the
      blanks are there is to show that the commission was negotiated
      between the parties to the contract that assures compliance with anti
      trust laws. There can also be an additional fee paid at closing to the
      broker. The next sentence explains that the seller consents to
      compensation from both parties in an exchange based on the value of
      both properties. Lines 46 though 48 are agreement from the seller to
      convey the property with a warranty deed. Lines 48, 49, 50 and 51
      state that the compensation is not set in any manner other than
      agreement between the parties, further anti trust language, clearly
      state fair housing practices and no discrimination will occur and that a
      request from the seller to observe discriminatory practices will not be
      granted since it is a violation of the law.
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      Lines 52 through 55 set the record straight that in the event the seller
      unlawfully fails to close due to a breach that the commission is still
      due and payable equal to what would be due if the sale had closed.
      Also that the commission will be payable without demand, this should
      avoid the need for a lawsuit. Lines 55 through 59 obligates the seller
      to pay all costs incurred in the marketing process should the seller
      want to terminate before the natural closing of the contract plus
      reasonable attorneys fees and court costs.


Lines 60 through 79
   The responsibilities of the parties to the contract are here in listed.
   Broker agrees:
      File listing in MLS
      Timely notice to MLS of status changes
      Use best efforts to produce a buyer
      Divide compensation with other brokers in the sale if applicable
      Place a for sale sign on property (written agreement as required by TN
      Code) and a lock box
      Remove all other real estate signs
      Disseminate info from Residential Property Condition Disclosure or
      exemption form and the MLS profile sheet
      Disseminate lead based paint disclosure, exterior injection well
      percolation test and soil absorption rate disclosure
      Exhibit property to any prospective buyer
      Have interior and exterior photographs, videos or audio recordings
      created for advertising, as broker deems appropriate.
   Seller agrees:
          Assist broker in any reasonable to sell property
          Refer all inquiries to broker
          Authorize broker to provide final sales info to MLS
          Allow property to be shown at all reasonable hours
          Authorize broker to receive on sellers behalf; notices, offers other
          documents incidental to the offering and sale
          Agrees to keep broker informed as to their whereabouts in order
          for broker to promptly forward all notices mentioned above




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Lines 80 through 96
      The hold harmless clause is important for the agent, broker and the
      real estate office. Starting in line 88 the seller agrees to be solely
      responsible of any misrepresentations or mistakes in information
      supplied by the seller. Seller further agrees to hold the agent, firm and
      broker harmless and indemnify them from any claim, demand action,
      liability or proceedings resulting from any omission or alleged
      omission by seller on the forms mentioned in this clause or any
      material fact that is known or should have been known by the seller
      concerning the property and that is not disclosed to agents and to
      provide defense costs for agents and firm.

Lines 97 through 99
      These lines reiterate permission given to broker and agents from
      sellers that are mentioned in lines 74 and 75 above.

Lines 100 through 102
      Seller represents that adequate insurance will be kept in force for any
      claims of damage, loss or liability arising from the showing of the
      property.

Lines 103 through 124
      Agency definitions are explained for broker, agent for the seller,
      facilitator or transaction broker.

Lines 125 through 148
      The rights owed to all parties to a transaction are explained as outlined
      in the Tennessee Code.
Lines 149 through 166
      Duties owed to a client under a written agency agreement as outlined
      in the Tennessee Code.

Lines 167 through 178
      Seller authorizes broker to appoint a designated agent if the broker
      deems it necessary and further explains the necessity to default to a
      facilitator as explained under Tennessee Code 62-13-102(9)(B).




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                              D&D School of Real Estate 2009
Lines 179 through 181
      Seller authorizes broker to accept earnest money (valuable
      consideration) to be applied to the purchase price. The broker is
      further authorized to hold the money in an escrow account until
      disbursed at closing as determined by the purchase offer.

Line 181 and 182
      Seller warrants that he/she has marketable title with full authority to
      execute this agreement and shall convey property with a general
      warranty deed.

Lines 184 through 189
      Seller may or may not agree to provide a home protection plan. One
      or the other of the ‘boxes’ must be checked.

Lines 190 through 195
      Disclaimer as to the fact that this is a legal document, which the agent
      is not, qualified or authorized to give legal advice and that seller is
      certifying that they have read the contract, accept the terms and
      received a copy of said contract.

Lines 195 through 204
      List any and all information the seller authorizes the broker to disclose
      that may be deemed to be confidential.

Lines 205 through 217
      List all exhibits and addenda attached to the contract.

Line 218 through 257
      List any special provisions if conflicting with any paragraph above.
      The provisions listed will control over the printed paragraph.

Lines 260 through 266
      Signature line for the broker should always be signed by the principal
      broker of the firm, dated and the name of the broker printed. There is
      no place on the contract for the listing agent to sign since said agent is
      not a party to the contract. If the agent signs for a broker there should
      be a properly executed power of attorney recorded in the county
      records to support the authorization. There is no provision in the
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      Tennessee Code to allow this duty of the principal broker to be passed
      on to agents under their licensure.

Lines 267 through 277
      Signature line for the sellers. All parties listed on the deed must sign
      this listing contract for it to be a valid contract. If it is not signed by
      all parties (in most cases both husband and wife) there is a question as
      to the validity of the contract and therefore a question as to the ability
      of the broker to enforce the payment of the commission.

This is the main listing contract that we will discuss; there are additional
contracts available for agents and brokers to use. A licensed attorney should
write all contracts. Although a seller has the right to use any contract they so
choose we, as agents, may not prepare the contract for them. We are
authorized under the law to assist the seller in the filling in of the blanks on a
pre-printer form such as those provided in Appendix D of this course.




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                               D&D School of Real Estate 2009
                              CHAPTER 3
                                  Quiz
Answer all the questions and transfer your answers to the answer sheet included in
this course.

1. Which of the following requires a contract to be in writing and to be
enforceable by a court?
      a. Parole evidence rule
      b. Statute of limitations
      c. Fraudulent contract rule T.C.A. 29-2-101(a)(4)
      d. Statute of Frauds


2. Which of the following is correct concerning a listing contract?
      a. Listing contracts are unilateral employment contracts.
      b. Listing contracts are executory, bilateral contracts.
      c. Listing contracts are bilateral, executed employment contracts.
      d. Listing contracts are bilateral option contracts.


3. A contract may be discharged by which of the following actions?
      a. Performance of the contract
      b. Breach of the contract
      c. Both a. and b.
      d. Parole evidence rules

4. Which of the following is correct concerning an exclusive right to sell
listing contract?
      a. The listing broker is entitled to a commission regardless of how procures the
      buyer.
      b. The Seller retains the right to sell the property himself without paying a
      commission
      c. The party that sells the property is the only one entitled to a commission.
      d. The contract may have an automatic extension date inserted with the seller’s
      permission.




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                                 D&D School of Real Estate 2009
5. Who are the parties to a listing contract?
      a. The sellers and the listing agent.
      b. Any of the owners named on the deed may sign on behalf of the other parties
      on the deed and the real estate company.
      c. The designated agent and the sellers
      d. The parties on the deed to the property and the listing broker.


6. Lines 23 through 41 of the example-listing contract describe personal
property and fixtures. Which of the following statements is true?
      a. The list of personal property and fixtures as printed must remain a part of the
      contract.
      b. No item may be stricken from the contract however; if the seller desires to
      change them they may use a different contract.
      c. If the sellers desire to change any of the printed items listed in lines 23 through
      31 they should list the items they desire to not include on lines 36 and 37 and
      strike them out on lines 23 through 31.
      d. Contract law does not address a proper way to strike preprinted words in a
      contract so the sellers would need to get guidance from their attorney.


7. Which of the following is not a responsibility of the listing broker?
      a. To know the whereabouts of the seller at all reasonable times.
      b. Remove all other real estate signs from the property
      c. Disseminate information as to any injection wells that are or may have been on
      the property.
      d. Have interior and exterior photographs created for advertising purposes.


8. Agent Phyllis lists a property for sale. The seller fills out the property
disclosure report for Phyllis and she ads it to her marketing information. The
property is sold within the original listing period and the buyer finds that
there was previous terminate damage that was not disclosed. The buyer sues
the listing broker, agent Phyllis and the seller. Under the terms of our
example listing contract, who is responsible for the legal expenses and any
judgments that may be handed down?
      a. All the parties mentioned are equally responsible.
      b. It is the agent’s responsibility to assure the buyer the seller has properly
      reported any previous damage.
      c. The principal broker is responsible.
      d. The seller since he/she agreed to hold the agent, broker and the company
      harmless for any misrepresentations they may make.


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9. Does the seller warrant the type of title it will pass on the buyer in the
listing contract? If so, which line indicates such and if not which line so
indicates?
      a. On line 181 the seller warrants they will provide a general warranty deed.
      b. The seller does indicate the type of deed they will provide. It is left to the buyer
      to request in the sales contract.
      c. The as is paragraph language in lines 12 through 148 cover the deed condition
      as well as the property condition.
      d. The deed relayed is determined by the closing agent depending on the type of
      buyers purchasing the property.

10. When establishing the compensation for the eventual sale of a listing
which of the following statements are true?
      a. Fees in addition to the standard commission, paid at closing, are acceptable.
      b. Commissions are established by negotiation between the parties to the
         contract and then displayed as either a percentage of the sale price or a flat
         fee.
      c. Both a. and b. are correct.
      d. Commissions must always be expressed as a percentage of the sale.
      e. f a listing which of the following statements are true?
      a. Fees in addition to the standard commission, paid at closing are acceptable.
      b. Commissions are established by negotiation between the parties to the contract
      and then displayed as either a percentage of the sale price or a flat fee.
      c. Both a. and b. are correct.
      d. Commissions must always be expressed as a percentage of the sale price.




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                                  D&D School of Real Estate 2009
                              CHAPTER
                                           4
          THE OFFER TO PURCHASE
                CONTRACT

Offer to Purchase Contract

       The offer to purchase contract is the initial offer by the potential buyer
(the offeror) to the seller (the offeree) for the purchase of the property. The
name may be different from area to area but the form s essentially the same.
We will discuss the “purchase and sale agreement” provided by the
Tennessee Association of Realtors located in the Appendix D of this course.
Again, this is an example of the sales contract, a potential buyer may use any
contract they choose including writing it from scratch for themselves. As
agents we must use a pre written contract, prepared by an attorney, as our
example is prepared. We are authorized to fill in the blanks as instructed by
the buyer. It is important to remember here that the sales contract is very
important since it sets the exact parameters the closing agent must comply
with to fulfill the desires of the parties of the contract and dictates the
contents of the deed to the property being conveyed.

Lets take a look at our example purchase offer.

Lines 1 through 10
      These lines identify the parties to the contract. First the buyer (or
      buyers) on line 2, then the seller (or sellers) on line three. Lines 4
      through 8 give the legal description of the property including the
      address and the book and page the property is recorded on in the
      county records. Line nine includes the fixtures, landscaping etc. as
      listed as part of the purchase and will be referred to as the ‘property’
      through out the contract.
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Lines11 through 18
      This clause describes all the things that are to be included in the sale.
      The only fill in is the number of garage door openers included. The
      parties do have the right to cross out any thing in this list if they do
      not intend to pass it along with the sale of the property. Any strikeouts
      must be initialed and dated to assure the parties understand and have
      agreed to this change. This list was compiled from experience in the
      market place by agents and should be sufficient to cover all items that
      normally would be included in the sale of a home.

Lines 19 through 22
      List any items to remain with property.

Lines 23 through 26
      List any items that will NOT remain with the property. If any items
      are also included in lines 11 through 18 above it would still be
      advisable to strikeout the items above to assure there is no ambiguity.
      Traditionally the written in language of a contract would supersede
      the printed word, a belt and suspenders approach certainly makes it
      clear as to the intentions of the parties to the contract.

Lines 27 through 29
      Opportunity to list all leased items that are included with the sale and
      future lease payments responsibility.

Lines 30 and 31
      If there is any fuel to be left on the property it will be adjusted and
      charged to the buyer for that which would be left at the home.

Lines32 through 36
      The purchase price is established in this paragraph and the
      disbursement of funds as controlled by T.C.A. 47-32-101 et seq.
      Below is listed a part of that code for your understanding.




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      47-32-102(3)
      3) “Disbursement of loan funds” means the delivery of the loan funds by the mortgage
      lender to the settlement agent in one (1) or more of the following forms:
               (A) Cash
               (B) Federal funds wire transfer including electronic payment, as defined in federal
               reserve regulation CC (12 CFR 229.2(p));
               (C) Checks issued by the state of Tennessee or a political subdivision of the state;
                  (D) Cashier's check, as defined in 12 CFR 229.2(i);
               (E) Teller's check, as defined in 12 CFR 229.2(gg), that is issued by a financial
               institution and drawn or payable through a financial institution;
               (F) Checks issued by an instrumentality of the United States organized and
               existing under the Farm Credit Act of 1971, compiled in 12 U.S.C. § 2001 et seq.;
               (G) A direct deposit by a financial institution to the account of a settlement agent
               held in the same institution; or
               (H) Checks issued from the escrow or trust account of a real estate broker
               licensed pursuant to the Tennessee Real Estate Broker License Act of 1973,
               compiled in title 62, chapter 13, and drawn on or payable through a financial
               institution within the same federal reserve check processing region as the location
               of the settlement agent in an amount not to exceed the earnest money paid by the
               purchaser and collected in the escrow or trust account;

Lines 37 through 44
      The buyer has a choice of box A or box B as to whether or not they
      will have a formal appraisal and make the offer contingent on the
      outcome of the appraisal. If box B is chosen the offer is contingent on
      the outcome of the appraisal and the buyer has a choice to terminate
      the contract if the appraisal does not meet the selling price by
      providing a copy of the appraisal. The buyer further is entitled to a
      refund of the earnest money deposit.

Lines 45 through 54
      This clause sets closing expenses traditional to the area as to whom is
      responsible for the payment of such. Either party may change all these
      traditional payments to the contract if they so choose. As discussed
      above as to lines 11 through 18, strikeout procedures should be
      followed here as well.

Lines 55 through 60
      Title expenses are discussed and a blank is left to fill in which party
      will be paying which expenses. Lines 58, 59 and 60 address those title
      expenses that may not be applicable and need to be modified. The

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      details of the modification should be explained exactly as they are to
      be carried out by the closing agent.

Lines 61 through 65
      The closing agent for the buyer and the seller are to b e spelled out on
      these lines. If there is a change line 65 allows for that without a major
      change to the contract.

Lines 66 through 70
      If there were financial contingency in the contract this clause would
      be used. The buyer needs to furnish proof of available funds and is
      given a deadline as to furnishing this proof. Further, if the buyer fails
      to close due to the lack of funds the buyer will be considered in
      default. It should be made abundantly clear to any buyer that would be
      using this clause that if they are in default there are consequences.

Lines 71 through 82
      We will break down the financial contingencies that are covered in
      lines 71 through 107 for better clarity. This clause is full of
      instructions that need to be understood by the buyer in detail. First the
      agreement is contingent buyer being able to obtain a loan for the
      purchase of the property. The amount of the loan is to be stated either
      as a percent of the purchase price or as a dollar amount. The only term
      of the loan that must be fulfilled is the length of the loan. This blank
      line must be filled in. If the buyer is unable to obtain the loan they
      may terminate the contract by providing written notice of the loan
      denial from the lender. A full refund of earnest monies is due the
      buyer in this situation.

Lines 80 through 82
      In this area of the contract the type of loan the buyer is seeking is
indicated.

Lines 83 through 94
      Buyer’s obligations as to the obtaining of a loan are spelled out here.
             (a) 5 days to make application
             (b) immediately notify sellers representative as to who the
             lender is.
             (c) pursue qualification and approval in good faith
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             (d) pay all necessary fees to complete the loan process and
             require the lender to get a credit report with 2 days of
             application
             (e) provide immediately requested documentation
             (f) buyer represents that the loan is not contingent on the lease
             or sale of another property. If this is the case it must be
             indicated as a contingency to the contract on line 349 through
             357 as and addenda or at line 358 and following as a special
             stipulation.
             (g) buyer will not make any material changes to his/her
             financial condition that would adversely affect their ability to
             obtain the above referenced loan.

Lines 94 through 107
      These lines are in support of the above lines 83 through 94. In essence
      this part of the contract gives the seller the opportunity to demand
      compliance to the obligations above by the buyer. Seller may make
      written demand for compliance and give buyer 5 days to furnish
      evidence. If buyer does not comply the seller obligation to sell is
      terminated and the buyer is in default. There is no explanation as to
      the moves by either party from this point on in this clause. On line
      269 (13. Default) there is an explanation of default by the parties and
      we will discuss the options at that point in the contract.
      From here (line 97) the buyer is given the option to also apply for a
      loan different from the above described terms and conditions provided
      there would be no additional expense or obligation to the seller and all
      terms and conditions are fulfilled. It is further stated the buyer will be
      obligated to close if the buyer has the ability to obtain a loan as
      described or any other loan for which the buyer has been approved.
      In line 101 the buyer is obligated to provide the seller or the seller’s
      representative a conditional commitment letter from the buyer’s
      lender providing reasonable assurance of the buyer’s ability to get the
      financing. As long as this letter shows the buyer will have funds
      available, credit and appraisal acceptable to the lender, the seller shall
      deem employment or income necessary to obtain the loan then it
      acceptable. Seller at this point may declare the contract null and void
      if this letter is not timely received and the earnest money is to be
      returned to the buyer.

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                              D&D School of Real Estate 2009
Lines 108 through 127
      This clause is the instructions as to the earnest money, how it is
      received, held and disbursed. Line 109 gives an option to receive the
      earnest money a specified number of days after the binding agreement
      date. Further it names the holder of the funds and the address of said
      holder (line 110). On line 111 the fill in shows the amount of the
      earnest money received either as a check or other means such as cash,
      etc. If the check bounces the buyer is given one day to deliver good
      funds. If the buyer doesn’t comply the seller may terminate the
      contract upon written notice. Starting in line 116 instructions for
      disbursement of the funds is spelled out.
             (a) At closing
             (b) Written agreement between all parties
             (c) Order of a court or arbitrator involved in a dispute
             (d) Reasonable interpretation of the contract
             (e) Filing an interpleader action with payment to the clerk of the
      court.
      A review of the rules of the Real Estate Commission (1260-2-.09) will
      show this portion of the contract follows these rules.
             Line 123 addresses the Holder and that they may be reimbursed
      for costs and expenses experienced by said holder. The prevailing
      party in an interpleader action may seek these costs from the other
      party. No party may seek damages from the holder for any matter
      arising out of or related to the performances of holders duties. Further
      the holder is allowed to hold deposited funds for a minimum of 14
      days to assure the funds cleared the account of the depositor.

Lines 124 through 137
      First the closing date is established in line 130; then it I determined
      that an earlier date is acceptable if agreed to by the parties in writing.
      In line 133 possession to the property is established. In the event this
      date is prior to closing for the buyer to possess or after the closing for
      the seller to maintain possession the line 137 should be checked and
      an occupancy agreement attached and made apart of the contract. This
      also needs to mention in section 18 line 349 and following of the
      contract.




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                              D&D School of Real Estate 2009
Lines 138 through 146
      This section addresses prorations; special assessments and Warranties
      transfer items to be prorated. There is a problem here in that the
      contract doe not address who pays for the day of closing. It should be
      addressed here since on the day of closing both parties will, under
      normal closing circumstances, have possession on that day. Special
      assessments costs are said to be the responsibility of the seller unless
      otherwise agreed to and expressed on line 143. Warranty transfers will
      be at the option of the buyer and at buyers cost. Seller hereby agrees
      to transfer whatever warranties the buyer may desire.

Lines 147 through 164
      Section five deals with title and conveyance. First of all seller
      promises to convey good and marketable title subject to the following
            (1) zoning
            (2) Setback requirements and easement of record
            (3) subdivision or condominium declarations and restrictions of
            record
            (4) leases and other encumbrances specified in agreement
      Line 156 addresses title examination and the buyer’s options in the
      event of a defect. Buyer has the following options;
            (1) Accept the property with the defect
                   (2) require the seller to attempt to remedy the defect
            within 15 days. If not remedied in the time given the buyer may
            terminate the contract and receive their deposit monies back.
            Line 161 through 164 defines exactly what good and
            marketable title is as addressed in this contract.

Lines 165 through 167
      This clause instructs the closing agent as to the exact manner in which
      the deed is to be written. Time should be taken at this point for the
      buyer to be sure these instructions are what they desire.

Lines 168 through 171
      This clause addresses Tennessee Code 66-5-201 and following in that
      the seller must provide a property disclosure statement, exemption or
      if buyer waives this disclosure. This must be provided, according to
      the contract, prior to the binding agreement date of the contract. This

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      conforms with the law in that this disclosure must be delivered prior
      to the acceptance of a contract.

            66-5-203. Delivery of disclosure or disclaimer statement.
            (a) The owner of residential real property subject to this part
            shall deliver to the purchaser the written disclosure or
            disclaimer statement, if agreed upon by the purchaser required
            by this part prior to the acceptance of a real estate purchase
            contract. For purposes of this part, a “real estate purchase
            contract” means a contract for the sale, exchange or lease with
            option to buy of real estate subject to this part, and
            “acceptance” means the full execution of a real estate purchase
            contract by all parties. The residential property disclaimer
            statement or residential property disclosure statement may be
            included in the real estate purchase contract, in an addendum to
            the contract, or in a separate document.
            b) Failure to provide the disclosure or disclaimer statement
            required by this part shall not permit a purchaser to terminate a
            real estate purchase contract; however, a purchaser shall not be
            restricted by this part from bringing such other actions at law or
            in equity that are otherwise permitted.
            [Acts 1994, ch. 828, § 3.]

Line 172 and 173
      In the event the property was constructed prior to 1978 the lead based
      paint disclosure is required.

Lines 174 through 192
      Section 8 covers inspection of the property. All inspections will be at
      the buyers expense. Lines 177 through 183 require all inspectors to be
      licensed according to T.C.A. 62-6-301 The Tennessee Home
      Inspectors licensing act of 2005 or they may do it their self or hire a
      professional to inspect the different systems of the property. This
      professional may be required by law to be licensed and that would
      also come under Title 62 Chapter 5 of the Tennessee Code. Line 183
      through must make all systems available for inspection including
      having utilities turned on. Line 184 and following buyer agrees to
      indemnify seller for all acts of inspectors and the buyer. In line 187
      the buyer waives any objections that are purely cosmetic, has no right
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      to require repairs to meet current building codes unless required by
      governmental authorities. Buyer further agrees to forfeit any rights for
      inspections if not timely performed and will accept the property in, as
      is condition.

Lines 193 through 202
      This paragraph lays out just what the buyer may inspect.

Lines 203 through 212
      This paragraph addresses wood destroying insects. First it determines
      who shall cause the inspections to made. Secondly who will pay for it
      and a maximum cost and to be completed by a licensed pest control
      operator. If any structures on the property are to be excluded they will
      be noted on line 208.
             Starting on line 209 the seller agrees to treat infestation at their
      expense and document the treatment to the buyer. This cost is not to
      be included in the repairs and replacement costs paragraph (section
      10, line 251). Any repair costs will be include in section 10 amounts.

Line 213 through 241
      This part of the contract has to do with the time periods the buyer has
      to complete inspections and resolve any work to be completed by the
      seller because to these inspections. First off on line 214 the number of
      days the buyer has to complete inspections must be determined.
      Starting on line 217 the options the buyer has are enumerated.
             Option one. Furnish a list of the objections and immediately
             terminate the contract and have the deposit returned. Buyer
             shall deliver a copy of all inspections.
             Option two. Buyer can accept property in an “AS IS” condition.
             Option three. Buyer to furnish seller any and all inspections and
             a written list of items which buyer want repaired or replaced.
             Seller shall notify buyer in writing within a specified number of
             days (to be filled in on line 229) to either accept the repair
             proposal or submit a counter proposal if the cost is greater than
             specified in section 10, line 253. If seller does not respond in a
             timely manner then the buyer’s proposal is deemed accepted.
             Line 235 buyer is given blank (to be filled in on line 235) to
             accept sellers counter proposal, make a counter, counter

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             proposal or terminate the agreement. Buyer failure to timely
             reply is deemed as acceptance of the seller’s counter proposal.
      There are certainly questions created by this clause since the first
      thing the buyer does is to terminate the contract. The intent is to notify
      the seller of the discoveries of the inspections, give the seller the
      opportunity to correct the problems or come up with a proposal to
      repair. If the parties cannot agree on a repair proposal they should be
      put back to their positions prior to the contract and the contract
      terminated. Although the indication is there are 3 options there re4ally
      is only one option with a litany of proposals and counter proposals for
      the parties to the contract.

Lines 242 through 245
      Buyer has the right to waive inspections or some of the inspections
      and may so indicate these waivers in this clause.

Lines 246 through 250
      In this clause the buyer has the right to conduct a final inspection
      within blank days (to be filled in on line 247) of the closing to assure
      the property is in the same or better condition then it was on the
      binding agreement date and to determine that all repairs/replacements
      have been completed. Further this clause establishes that closing
      constitutes acceptance of the property in its condition at closing. This
      date should be as close to the actual closing as is possible or prior to
      possession by the buyer.

Lines 251 through 253
      Repair/replacement costs are to be determined by the buyer, and then
      accepted by the seller prior to knowing what if any repairs or
      replacements are to come up. This amount must be filled in on line
      253. This is traditionally a very tough number to come up with.

Lines 254 through 265
      This clause protects the agents from liability from any of the
following:
            (1) They are not parties to the contract
            (2) Not responsible for the performance or nonperformance of
            the buyer or seller
            (3) Matters, which could have been revealed by a survey
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                              D&D School of Real Estate 2009
             (4) Flood certification
             (5) Title search
             (6) Any property inspections
             (7) Property condition or any portion there of
             (8) Necessity or cost of any repairs
             (9) Hazardous or toxic materials
             (10) Tax or legal consequences
             (11) Availability-capability or costs of utilities or community
             amenities
             (12) School district boundaries
             (13) Appraised or future value of property
             (14) Square footage of property
             (15) Conditions off property that may effect property whether
             permitted or proposed
             (16) Buyer and seller acknowledge that agents are not experts to
             any of the above matters and that they should seek independent
             advice relative thereto.

Lines 266, 267 and 268
      Seller has agreed to pay the listing broker by separate agreement
      (listing contract) and that the listing broker will direct the closing
      agent to pay selling broker an amount specified by said separate
      agreement.
Lines 269 through 274
      Provisions for default by either party are laid out in this clause.

Lines 275 through 281
      This clause the availability of a home protection plan and if it is to be
      provided by the seller. It further states that the broker ordering the
      plan may receive an administrative fee for the plan. Line 281 shows
      that the parties to the contract have waived this plan. By signing this
      contract both parties show they were made aware of a home
      protection plan so they cannot come back in the future saying they
      were not made aware of such a plan.

Lines 282 through 329
      Here other provisions to the contract are spelled out. We will discuss
      them individually.

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                              D&D School of Real Estate 2009
     (A) Binding agreement. It is explained that this is the entire agreement
     between the parties and that it is binding on said parties. Anything not
     in the contract is not binding upon the parties. The parties further
     authorize either licensee (sellers agent or buyers agent) to insert the
     time and date this offer was accepted by all parties and agrees to be
     bound by that date (the binding agreement date).
     (B) Survival clause allows for actions that may be performed after the
     closing are still binding on the parties.
     (C) Governing law and Venue. The laws of the state of Tennessee will
     govern the contract.
     (D) Time is of the Essence. This requires the parties to act in a timely
     manner as to performing all tasks addressed in the contract.
     (E) Terminology. Self explanatory as to context of the agreement.
     (F) Responsibility To Cooperate. Both buyer and seller agree to
     cooperate in the complete execution of the contract and to further
     assist in correcting any necessary documents after closing I asked.
     (G) Notices. Any notice may be delivered by;
             (1) in person
             (2) prepaid overnight delivery
             (3) facsimile transmission
             (4) U.S. postage service
             (5) email
     Notice will be deemed to have been given as of the date and time it is
     actually received. Receipt by a representing or assisting broker will be
     accepted as notice to the contractual party.
     (H) Risk of loss. Risk of loss shall be borne by the seller. If a loss
     prior to closing exceeds 10% of the purchase price either party may
     terminate the contract and earnest money will be refunded to buyer.
     (I)Equal Housing. Fair housing rules apply in this contractual process
     (J) Buyer agrees to furnish seller with any and all documentation,
     which supports a buyer’s right to terminate under any provision in the
     contract at the seller’s request. This documentation is provided for the
     sellers benefit only. However, the buyer is not required to provide
     documentation in violation of any confidentially agreement or
     copyright protection laws.

Lines 330 through 345
      Additional due diligence by the buyer in the following areas are
      suggested in this clause.
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                            D&D School of Real Estate 2009
             A. Survey and flood certification. These are the best means of
             identifying boundary lines and or encroachments and
             easements, also to determine if the property is in a flood zone.
             This is a suggestion to the buyer to obtain these items.
             B. Water supply. It is the right and the responsibility of the
             buyer to determine if the water supply meets state or local
             standards.
             C. Waste disposal. This system also may or may not meet state
             and local requirements. Again it is the buyer’s right and
             responsibility to find out this information.
             D. Title Exceptions. This is a statement as to the general
             warranty deed that will be passed at closing. It will be subject to
             matters addressed in this clause.

Lines 346,347 and 348
      Seller is obligated to disclose the existence of any injection well,
      percolation test or soil absorption rate by counter offer unless the
      disclosure has already been received and acknowledged by the buyer.
      This conforms to T.C.A. 66-5-212 as shown below.

             66-5-212. Disclosure of known percolation tests or soil
             absorption rates
             In addition to any other disclosure required by this part, the
             seller shall, prior to entering a contract with a buyer, disclose in
             the contract itself or in writing, including acknowledgement of
             receipt, the presence of any known exterior injection well and
             the results of any known percolation test or soil absorption rate
             performed on the property that is determined or accepted by the
             department of environment and conservation.
             [Acts 2006, ch. 699, § 1; 2007, ch. 244, § 1.]


Lines 349 through 357
      Section 18 is for listing all exhibits and addenda that are attached and
      made a part of the contract.

Lines 358 through 376
      Section 19 is for ‘special stipulations’. Changes to the contract,
      contingencies or additional information are to be stipulated in this
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                              D&D School of Real Estate 2009
      section. When preparing a contingency it is important that it clearly
      describes the actions that are to take place to fulfill the contingency or
      condition. By remembering the acronym “CAT” may help in writing
      a condition or contingency.
            C Who will bear the cost of the contingency?
            A What actions must be satisfied to fulfill the contingency
            T Spell out the exact time frame in which the actions are to be
      performed.

Lines 377 through 381
      Method of execution. This clause authorizes acceptance of signatures
      via fax, photocopy, or digital signature as the same as an original. It
      further states that a combination of an original signature plus any of
      the above mentioned are acceptable as well. In today’s electronic
      environment this is an important clause to have in a contract.

Lines 382, 383 and 384
      Section 21 limits the time of the offer. This time must be completed
      by the offeror and limits the time for the offeree to respond. If
      response does not occur in the specified time the offer terminates.
      With this time inserted all counter offers would also be limited to the
      time. It may be necessary to extend the time if negotiations are taking
      longer than originally thought to take.

Lines 385 through 389
      Disclaimer to the parties that this is a legal and binding document and
      that the agents are authorized or qualified to give legal advice. If there
      are questions the contract should be reviewed by an attorney
      representing the questioning party.

Lines 389, 390 and 391
      Instructions as to the use of the boxes throughout this contract.

Lines 392 through 396
      Signature lines for the buyer and the time/date of the offer.




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                              D&D School of Real Estate 2009
Lines 397 through 404
      Signature lines for the seller and an indication of acceptance, counters
      or rejection. This is also time/date stamped o show compliance with
      section 21 above.

Lines 405, 406 and 407
      The binding agreement date is inserted here and is established by the
      receipt of notice of the last offeree’s acceptance. This is filled in by
      authorization of the parties previously given at line 288 by the either
      agent.

Lines 408 through 412
       These are informational lines to let the parties know the real estate
       companies involved and the agents of those companies.
This concludes our in depth discussion of the sales contract. As mentioned
previously the contract used may be in any form accepted by the parties to
the contract. As professionals we should urge the parties to use a form such
as this that does cover all the aspects of the purchase they are interested in
completing. A contract such as this assures the parties that all necessary
aspects of the agreement are included.




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                              D&D School of Real Estate 2009
                               CHAPTER 4
                                   Quiz
Answer all the questions and transfer your answers to the answer sheet included in
this course.


1. The parties to the contract are enumerated on lines 1 through 10 of our
example contract. Do the names provided here as the purchasers establish
the names that are to be used on the deed?
      a. Yes
      b. No
      c. This is determined by the closing agent
      d. The deed is to be in the name provided in section 5 paragraph B of the contract.

2. Is it necessary to list items that may be described as fixtures that will not
be included in the sale of the property?
      a. No
      b. This would depend on whether the item is a trade fixture or not.
      c. It would be necessary to list and lines are provided for this action.
      d. This is left to the discretion of the parties to the contract.

3. Which of the following is not an authorized form of disbursement of
funds at the closing of a transaction when the property sale is funded by a
loan?
      a. Cash
      b. Personal check with bank estoppel letter
      c. direct deposit by a financial institute
      d. Teller’s check

4. If the buyer chose to check the box for section 2 paragraph A and then be
unable to obtain financing what happens to the earnest money deposit?
      a. The buyer is considered in default and the seller has the option to keep the
      deposit.
      b. The buyer has the right to terminate the contract and receive the deposit back.
      c. The buyer and the seller would split the deposit.
      d. A portion of the deposit would be used to coverall expenses thus far expended
      to complete the transaction and the remainder would be split between the listing
      broker, the selling broker, the buyer and the seller.


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                                  D&D School of Real Estate 2009
5. Which of the following is not an obligation of the buyer when obtaining a
loan to fund the purchase of a property?
      a. Five days to make application
      b. Notify the seller’s representative as to who the lender will be.
      c. Require the lender to get a credit report with 2 days of application
      d. Provide the seller or their representative with all loan documentation when
      requested.

6. The Regan’s have an accepted contract on a property on Walnut Street.
They have had their uncle Raymond, a general contractor, do the home
inspection and have submitted a list of repairs they require the seller to be
made. The estimated cost is within the amount stipulated by the seller but
the seller is refusing to pay for the expenses. Under what conditions does the
seller hold this right?
      a. The seller is required by section 10 to complete the repairs or be considered in
      default of the contract.
      b. The buyer is considered in default of the contract under section 10.
      c. The buyer is out of compliance with the contract due to T.C.A. 62-6-301 and
      therefore the seller does not have to comply.
      d. The amount of the repairs is still negotiable under the terms of the contract.

7. Henry and Meara Jefferson have an accepted offer on a home on Lamont
St. The Wood destroying infestation report indicated there are termites in the
home and a fair amount of damage. Do they have the right to expect the
costs for treatment and repair to be borne by the seller?
      a. Yes
      b. The seller in the contract agreed to pay for the treatment but the repairs would
      fall under section 10 of the contract.
      c. The seller would always pay for the treatment and the repairs under section 8
      paragraphs C of the contract.
      d. This would be determined by the negotiations between the parties to the
      contract.

8. Under section 8 paragraphs D of the example contract, how many options
may the buyer check as to inspection period and resolution of items
discovered through allowable inspections?
      a. One
      b. Two
      c. Three
      d. None of the above.




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9. Section eleven protects which of the following parties
      a. The buyer and the seller
      b. The buyer, seller, closing agent and the real estate brokers
      c. The closing agent and the real estate agents
      d. The Real estate firms and the real estate licensees representing or assisting the
      buyer and the seller.

10. Which section of the sample contract allows the renegotiation of the
commission by the seller and the buyer?
      a. Section 10
      b Section 12
      c. Section 18
      d. None of the above




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     Appendix
                 A
T.R.E.C. POLICIES




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      D&D School of Real Estate 2009
                   Appendix
                                B
 TENNESSEE LAW AND
    RULES OF THE
    COMMISSION
You can find a copy of the Tennessee Rules and Laws at
    your brokers office or on the TREC web page:

http://www.state.tn.us/commerce/boards/trec/index.html




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                    D&D School of Real Estate 2009
     Appendix
                 C
SAMPLE CONTRACTS




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