CD5: Risk Management
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Risk Management Basics

• List four components to manage risk: education, risk shifting, risk anticipation, risk control
• Recognize that brokers can reduce legal liability through a greater emphasis on educating their salespeople
• State two methods of shifting liability away from the broker: purchasing errors and omissions insurance and advocating the use of inspections or evaluations by third parties
• Summarize the value of seller disclosure statements in assigning responsibility to the seller for disclosure of property problems
• Explain that seller disclosure does not relieve the agent from inspecting red flags, and discuss the value of getting all oral representations confirmed in writing
• Identify procedures to handle problems, including immediate reporting to the broker and the need to properly handle complaints from clients and customers

Communication Practices

• Explain that intentional misrepresentation is active fraud, i.e., knowingly making a false statement about a material fact
• Explain that intentional concealment is constructive or passive fraud, i.e., knowingly failing to disclose a material fact
• Explain that making a false statement about a material fact when the broker should have known otherwise is negligent; a broker should not rely on a seller disclosure if the broker observes a "red flag"
• Distinguish between misrepresentation (fraud) and advice (suggestion)
• Identify at least five of the most common causes of litigation
• Summarize the importance of seller disclosure, checking with the local building departments, getting verification of repairs made in writing, the importance of hiring experts such as a surveyor, and learning basic "red flags" which should alert an agent
• List what agents may say and do without practicing law

Environmental Hazards

• State the major laws impacting environmental issues, such as CERCLA, SARA, RCRA
• Explain the dangers of exposure to asbestos and how experts deal with removal
• Discuss the widespread use of formaldehyde in homes and its long-term effects
• Identify characteristics of radon and explain how it is mitigated
• Describe the problems that develop in airtight buildings from accumulations of formaldehyde, radon, and asbestos and how buyers can use indoor air quality surveys
• Explain the effects of lead on people and list lead-based paint requirements
• Discuss the problems that develop when structures are built on landfill sites and how property values are lowered by close proximity to such sites
• Explain that both current and former owners are responsible for underground storage tank (UST) maintenance
• List at least three exemptions from UST requirements
• Identify at least five sources of groundwater contamination
• Describe places where PCBs are used (electrical equipment) and effects of PCBs when leached into the soil
• Summarize four precautions to reduce risk from environmental hazards

Agency

• Recognize at least five common causes of legal action involving agency issues
• List at least five possible consequences of breach of agency duties
• Itemize three steps to avoid legal action in relation to agency issues
• Explain subagency
• Describe the duties of a seller's agent to the seller and buyer/customer
• Describe the duties of a buyer's agent to the buyer and seller
• List at least five types of buyers who should be represented by an agent
• Explain the legalities, fiduciary duties, and potential dangers of dual agency
• Explain the consequences of unintended or accidental dual agency
• Describe the appropriate time to discuss agency representation with buyers and sellers

Federal Fair Housing Laws

• List all seven protected categories under Title VIII of the Civil Rights Act: race, color, religion, sex, national origin, handicap, familial status
• Identify at least five actions prohibited by the law: refuse to sell, rent or negotiate, or make unavailable after offer is made; discriminate in terms, condition, privileges, or services; lying about availability; no access to MLS; deny financial services
• Define steering, blockbusting, and discriminatory advertising, and give examples of each
• Provide examples of handicaps and explain prohibited and required actions when selling or renting housing
• Define a "family" and what constitutes familial status discrimination in rental and sale of housing
• List legal options an aggrieved party can take regarding fair housing discrimination
• Describe legal penalties that can be assessed in cases of fair housing violations
• Explain risk reduction recommendations

Americans with Disabilities Act

• Describe the basic requirements under the Americans with Disabilities Act (ADA) Title I—Employment
• List examples of "reasonable accommodations" when employing individuals with disabilities
• Explain how brokers can avoid claims under Title I by using written job applications, avoiding discriminatory questions, and learning what disabilities are covered under the act
• Summarize requirements under Title III—Public Accommodations and cite ways to reduce risk of legal problems with the ADA for brokers and commercial clients

Antitrust Laws

• Explain that the purpose of antitrust laws is to protect competition and prevent monopolies
• Recognize situations that can lead to charges of conspiracies to fix real estate commissions or commission splits
• Explain that the Sherman Act applies only to contracts that unreasonably restrict trade
• Define and give an example for the illegal activities of group boycotts and tying arrangements
• Explain that the Antitrust Division of the Department of Justice investigates complaints and that the consequences of violations are severe
• List methods of reducing antitrust liability

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