2011 2012 Core Course (PDF)

2011 -2012 Core Course
For Tennessee Licensees… 6 H
Hours CE Credit

ITS School of Real estate
ItsBusinessTraining@Gmail.Com

This Workbook is the property of

ITS School of Real Estate
ITSBusinessTraining@Yahoo.com
School # 1537
Course # 6816
September 2011
1st Edition

Learning Objectives…
This six (6) hour course for continuing education credit is designed
not only to help you meet the required educational requirement for
completion of a “core course”, but also to examine the changes in law,
business practices, and business environments that we as real estate
professionals face today.
The Tennessee Real Estate Commission has provided the Outline for this
year’s core course. This course will include a study of these topics…

1. TREC Law, Regulation, and Policy Changes
2. Disclosures: Mold, Act of Nature/Floodplain, Stigmatize Properties
and Suppression of known facts by a licensee
3. Principal Broker Supervision
4. Contracts
5. The Agency Relationship
6. Fair Housing
7. Marketing: Advertising Guidelines and Gift Marketing

I hope you enjoy this study and are able to take something away from
this course. This review of TREC regulations and Federal laws are to ensure
that you and your clients have the very best chance for success and that you
have a good understanding of the changes that will affect you in your day
to day business activities.

Workbook materials by John Wilkinson

Chapter One: New Laws and Amendments

The laws and regulations that govern the real estate profession are in a
constant state of flux. These laws evolve to meet new technology, business
practices, and address areas of need in the realm of business and consumer
protection. The State Legislature and Tennessee Real Estate Commission will both
be responsible many changes and proposed changes every year. These changes are
sometimes minor and tweak minor problems, and sometimes these changes are
major and have the effect of changing the way we as real estate professional go
about our daily routines. The important thing to remember is that changes in the
law are a given, and you must be vigilant to stay informed of these changes and
how they will affect you and your clients.
As we work through this chapter… Let’s review the entire section provided
and not just look at the line or paragraph that is changed or added. We can all use
the refresher and the change must be read in the context of the entire section to
have a full and complete understand of the law’s purpose.

Senate Bill #2103 and House Bill #2025
Tennessee Code Annotated 62-13-309 Paragraph “G”
On April 27th 2009, that legislature sent to the governor an amendment and
addition to the Tennessee Code Annotated 62-13-309. This T.C.A. is the law form
which the Tennessee Real Estate Commission derives its authority to regulate
licenses in the state of Tennessee.
Upon approval, this amendment made a substantial change to the license
law and marks an unusual occurrence where the state houses step in and make
changes directly. Normally and throughout the rest of these changes we will
detail, the Commission is acting with the authority given to them by the state.
In this instance, the legislature acted and ordered this change that the
commission and we as licenses are now obliged to follow.

Paragraph “g” was added that reads as follows…

A principal broker may act as a principal broker for two (2) firms as
long as both firms are in the same location. As used in the subsection (g) the
phrase “same location” means that both firms are located and use the same
physical address.

• Please note that this change does not allow and affiliate to be affiliated with
more than one firm, even if that second firm is at the same address.

Regulation Change # 1 1260-01-.01 Application for Examination

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 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.
(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 62-13312. 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, 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 has been added… This rule is self explanatory, but a
necessary step taken by TREC to ensure that the public trust is maintained in the
licensing process.

Regulation Change # 2 1260-01-.012 FEES
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);
Rule 1260-1-.10 RULES OF REAL ESTATE COMMISSION 58
(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.

Paragraph 5 has been added… After this 60 day window, a licensee who has
failed to renew will be required to re-test and re-apply to the commission for
licensing.

Regulation Change # 3 1260-01-.015 E and O Insurance

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 four was added to further detail the requirements of E and O plans
obtained from a different vendor other than the one the state has contracted with. You
are required to have this insurance, but you are not required to use the vendor the state
provides.

Regulation Change # 4 1260-02-.02 Termination
1260-02-.02 TERMINATION OF AFFILIATION.
(1) Any licensee or principal broker wishing to terminate the licensee’s affiliation with a firm shall
submit to the Commission a completed Transfer, Release and Change of Status Form
(TREC Form 1). The form must be faxed, mailed, or e-mailed to the Commission to be
effective. The principal broker’s supervisory responsibility for the future acts of the licensee
RULES OF CONDUCT CHAPTER 1260-02
(Rule 1260-02-.02, continued)
June, 2010 (Revised) 2
shall terminate upon the Commission’s receipt of the release form. The principal broker shall
retain a copy of the executed form.
(2) Within ten (10) days after the date of release, the licensee shall complete the required
administrative measures for either change of affiliation or retirement. The licensee shall not
engage in any activities defined in §62-13-102 until a change of affiliation is received and
processed by the Commission.
(3) When a licensee terminates his affiliation with a firm, he shall neither take nor use any
property listings secured through the firm, unless specifically authorized by the principal
broker.
(4) Upon demand by a licensee for his release from a firm, it shall be promptly granted by the
principal broker and the principal broker shall return the license to the licensee. If the
licensee cannot be located then the principal broker may return the license to the
Commission.
(5) If the principal broker is deceased or physically unable to sign the release, or refuses to sign
a release, the licensee requesting termination of affiliation must submit to the Commission a
notarized Affidavit for Release.
(6) If the affiliated licensee is deceased or physically unable to sign a release, or refuses to sign
a release, the principal broker requesting termination of affiliation must submit to the
Commission a completed TREC Form 1.
(7) The Commission will not intervene in the settlement of debts, loans, draws, or commission
disputes between firms, brokers and/or affiliates.
Authority: T.C.A. §§62-13-203 and 62-13-310. Administrative History: Original rule certified June 7,
1974. Repealed and refiled March 3, 1980; effective April 27, 1980. Amendment filed January 21, 1983;
effective February 22, 1983. Amendment filed September 13, 1989; effective October 28, 1989.
Amendment filed June 17, 1991; effective August 11, 1991. Amendment filed March 16, 2010; effective
June 14, 2010.

This section is completely new and replaces the 3 points found in the 1991
law. The main differences are being that this rule goes into much more detail
about what a licensee is to do in certain situations… Such as death of a broker,
refusal by a broker or agent to sign, etc.

Regulation Change # 5 1260-02-.09 Earnest Money
1260-02-.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.
Rental deposits must be held in a separate account.
(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, in accordance with the terms of the contract.
(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) Where a contract authorizes an individual or entity other than either broker to hold such funds
in an escrow or trustee account, the broker will be relieved of responsibility for the funds
upon receipt of the funds by the specified escrow agent.
(6) A broker may properly disburse funds from an escrow 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 and is separate from the contract which authorizes him to hold such funds;
RULES OF CONDUCT CHAPTER 1260-02
(Rule 1260-02-.09, continued)
June, 2010 (Revised) 5
(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.
(7) Funds in escrow or trustee accounts shall be disbursed in a proper manner without
unreasonable delay. Funds should be disbursed or interplead within twenty-one (21)
calendar days from the date of receipt of a written request for disbursement of earnest
money.
(8) No postdated check shall be accepted for payment of a deposit or earnest money, unless
otherwise provided in the offer.
(9) 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:”.

Take note of the additions found in paragraphs #5 and #7. Paragraph #5
addresses the use of a special escrow agent and liability issues created or relieved,
and #7 addresses a new 21 day rule for funds disbursement. The rule changes
mainly apply to principal brokers.

Regulation Change # 6 1260-02-.12 Advertising
1260-02-.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 licensee is not engaged in the real estate business.
(b) All advertising shall be under the direct supervision of the principal broker and shall list
the firm name and telephone number.
(c) No licensee shall post a sign in any location advertising property for sale, purchase,
exchange, rent or lease, without written authorization from the owner of the advertised
property or the owner’s agent.
(d) No licensee shall advertise property listed by another licensee without written
authorization from the property owner. Written authorization must be evidenced by a
statement on the listing agreement or any other written statement signed by the owner.
(e) No licensee shall advertise in a false, misleading, or deceptive manner.
(3) Advertising for Franchise or Cooperative Advertising Groups
(a) Any licensee using a franchise trade name or advertising as a member of a
cooperative group shall clearly and unmistakably indicate in the advertisement his
name, broker or firm name and firm telephone number (as registered with the
Tennessee Real Estate Commission) adjacent to any specific properties advertised for
sale or lease in any media.
(b) Any licensee using a franchise trade name or advertising as a member of a
cooperative group, when advertising other than specific properties for sale or lease,
shall cause the following legend to appear in the advertisement in a manner
reasonably calculated to attract the attention of the public:”Each [Franchise Trade
Name or Cooperative Group] Office is Independently Owned and Operated.”
(c) Any licensee using a trade name on business cards, contracts, or other documents
relating to real estate transaction shall clearly and unmistakably indicate thereon:
1. his name and firm telephone number (as registered with the Commission); and
2. the fact that his office is independently owned and operated.
(4) Internet Advertising
(a) The listing firm name and telephone number must conspicuously appear on each page
of the website.
(b) Each page of a website which displays listings from an outside database of available
properties must include a statement that some or all of the listings may not belong to
the firm whose website is being visited.
(c) Listing information must be kept current and accurate.
(5) Guarantees, Claims and Offers
(a) Unsubstantiated selling claims and misleading statements or inferences are strictly
prohibited.
(b) Any offer, guaranty, warranty or the like, made to induce an individual to enter into an
agency relationship or contract, must be made in writing and must disclose all pertinent
details on the face of such offer or advertisement.

Review the changes to section #2 (d) and section #4

Regulation Change # 7 1260-02-.33 Gifts and Prizes

1260-2-.33 GIFTS AND PRIZES.
(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

This whole section has been reworded to be more clear and concise.
We will go into more detail and cover this subject thoroughly in chapter six.

Regulation Change # 9 1260-02-.37 Septic Letter

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 is a new addition to the TREC manual; this is both a disclosure
issue and a liability issue for a licensee. There are many instances where a 5
bedroom house may be sitting on a 3 bedroom perk site. This can be for
many reasons such as expansion, ignorance, or even fraud. The licensee is
obligated to let the potential buyer aware that TDEC is available to advise
and answer questions of this nature.

Tennessee Department of Environment and Conservation
Commissioner Robert J. Martineau, Jr.
401 Church Street, L&C Annex, 1st Floor
Nashville, TN 37243
(615) 532-0109

The Division of Ground Water Protection
Britton Dotson, Director
10th floor, L&C Tower
(615) 532-0762

Regulation Change # 10 1260-05-.01 Education

EDUCATIONAL REQUIREMENTS
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.
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.

The last two sentences of this introduction to section 5 of the TREC manual
is a restatement of the old introduction to include a specific reference to TREC’s
intention to regulate the continuing education market.
For example, this course was submitted to educational director Steve
McDonald for his review… If he so chooses, a course is submitted to the TREC
Board at one of its monthly meetings and voted on for approval. The course is
then given an approval number to show its completion of the course submission
process.

Regulation Change # 11 1260-05-.03 Course Requirements

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 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
Rule 1260-5-.03 RULES OF REAL ESTATE COMMISSION 76
(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
(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 which 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
77 EDUCATIONAL REQUIREMENTS Rule 1260-5-.03
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.
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.

Paragraph Six has been substantially restated to detail the requirement for a
candidate for licensing to skip the required 60 hour course with a real estate
centered college degree. These requirements are much more specific as to the
course requirements.

Regulation Change # 12 1260-05-.07 School Records

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). 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 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.

This rule has been tweaked a little bit from its original wording to further
clarify the commission’s right to access the records of former students held by the
school. This change is not of real significance to anyone but real estate school
owners, but the licensee will be reassured that their records are recorded properly.

Regulation Change # 13 1260-05-.11 Correspondence Courses

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:
81 EDUCATIONAL REQUIREMENTS Rule 1260-5-.11
1. students will be provided a 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.

This entire rule is new and has replaced the 1988 version. This rules further
creates standard by which a course like this is to be created and requires internet
based courses to be approved by a third party known as ARELLO which specializes
in web based education.

Regulation Change # 15 and 16 1260-05-.15-.16 Course Approval
1260-5-.16 COURSE APPROVAL PERIODS.
(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 nonapproval
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.

These changes detail the course approval terms and fees… The major difference is that
the courses are now approved for a set two year window, such as 2011-2012 whereas
before, the course was good for two years from the time of approval.
In addition, TREC now charges $25 for the approval of each individual Instructor.

Chapter One Quiz: Law and Regulation Changes 10 Questions

1. Broker Wayne can now be the principal broker of ABC Realty in Nashville, and
also be the principal broker of DEF Realty in Knoxville.
A. True
B. False

2. Agent John works for Broker Jim at Cheat’em Good Realty at 115 Main Street.
Broker Jim has opened a second firm at the same location under the name Honest
Realty. Under the new rules, Agent John can be affiliated with both firms because
they are in the same location.
A. True
B. False

3. Policy Statement 2009-CPS-002 makes it clear that priority will be given to
complaints by licensees against other licensees.
A. True
B. False

4. Policy Statement 2009-CPS-003 requires that any individual convicted of a
criminal offense must include a certified copy of the conviction with his/her
application for licensing.
A. True
B. False

5. Licensees who attend the meeting of Tennessee Real Estate Commission on the
day the Legal Report is presented shall receive four (4) hours of Continuing
Education Credit. The licensee must be in attendance for the full day.
A. True
B. False

6. John was released from jail after being convicted of a felony 13 months ago,
according to rule 1260-01-.01 John must wait 11 more months before being eligible
for licensing.
A. True
B. False

7. Under Rule 1260-01-.12 FEES, the penalty for failing to timely renewal is $200 a
month.
A. True
B. False

8. Under Rule 1260-01-.15, a licensee must use the state provided vendor for E & O
insurance.
A. True
B. False

9. Under Rule 1260-02-.37, a licensee preparing an offer to buy shall provide in the
offer and make the buyer aware that, for a fee, a septic inspection letter is available
through the Tennessee Department of Environmental and Conservation.
A. True
B. False

10. Under Rule 1260-05-.03, a college graduate with an accounting degree is
exempt from the 60 prelicensing requirement and may sit for the real estate exam.
A. True
B. False

Chapter Two: Contracts

What is a contract?
Webster’s definition: A binding agreement between two or more
parties that is enforceable by law; a formal writing which contains the
agreement of the parties, with the terms and conditions, and which serves as a
proof of the obligation.
Cambridge Dictionary’s definition: A legal document that states and
explains a formal agreement between two different parties or groups, or the
agreement itself.
Course Definition: A voluntary agreement between two legally capable
parties to perform or refrain from some legal act. This contract must be free of
duress and must include some form of legal consideration.
At first glance, what is your opinion of these definitions? Are these
definitions accurate? Specific enough?

As we work through this study of contracts we will refer back to these
definitions and you will be asked to develop a new definition that
incorporates the elements of validity, the necessary parties, and duties.

Historical Perspective…
Elements in common law…
A common misconception is that the contract law practiced in the
United States legal system today is a creation of our founding fathers and
lawmakers of early American times, but in reality our contract law crossed the
Atlantic with the first English settlers who brought their “common law” with
them.
“A basic axiom to remember is that in the history of the world, as people of
different cultures mingle through trade, travel, and immigration or war, we pick
up pieces of other people’s culture and religions and incorporate them into our
own. This evolutionary process is so slow that it is barely noticeable.”
Gene Vitamamti

The term common law…
“Common law is that which is based on custom or usage of the common people
as opposed to law imposed from above by a higher source, such as a monarch,
dictator, or religious leader. It is a slow process that is always adjusting itself.”
“Note that the common law is designated “ common” because it was a law
common to all of England and administered by a central court, as distinguished
form the customary law that varied, albeit often in manor ways, from county to
county, lordship to lordship, or manor to manor.”
Gene Vitamamti

In reality, the 1st elements of the English common law that later evolved
into the contract law that we have today began in the 12th century. For the
first time, laws were set down to establish the methods by which the evidence
or “proofs” of a contract or debt could be proven. Initially there were three
options.
1st Proof by Duel… Yes, this is what is implied by the name. As in a
Hollywood film, two parties would settle their dispute with weapons. The
theory behind this arrangement is that the hand of God would guide the
righteous party to victory. For obvious reasons, we are not going to spend a
lot of time on this option.
2nd Proof by Witness… The proof of a debt or contract could be proven
by the swearing of an oath by two or more witnesses as to the validity of a
contract or debt. Initially there were no safe guards, as to the reliability of the
witnesses, or the option of examination or defense of the accused party. The
simple presentation of two or more witnesses was proof of the debt. We can
quickly see how this option could be used a dishonest party to produce
“proof” that did not is reality exist.
3rd Proof by Writing… The proof of a contract or debt could be proven
by the existence of a written agreement. Initially there was not any set form
or required elements, these would come later and by the 15th century this
would be the expected and preferred form of proof.
For the past 800 years, the evolution of this common law into today’s
contract law has been a continual process of trying to prefect this idea of
“proof” while trying to guarantee that the contract is an accurate
representation of the original deal or agreement. In this evolutionary process,
the idea of consideration, or proof of benefit, was established. The first
requirements for written contracts were establish with the first Statue of
Frauds, and other rules and requirements for elements of a valid contract
were slowly codified.
As we work through this course, if you will examine each element of
contract law as it fits into this evolutionary process, its function will become

clearer. Each element of a contract should work to identify the parties or
property, articulate the agreement, or prove the existence of the agreement.
What four principles would be in your definition?

1.

2.

3.

4.

Give me your definition of a contract.

Expressed vs. Implied Contracts

Expressed Contract: This is a contract in which the terms are expressed
explicitly, either in writing or verbally. The term and scope of this agreement
have been detailed and agreed upon beforehand, and the parties have reached
an agreement and mutual understanding. In this type of contract, there is no
ambiguity as to the details or agreement; it has already been worked out.
•

Don’t fall into the common trap where students believe expressed
contracts can only be in writing, verbal contracts can also be expressed.

Implied Contract: This is a contract in which the terms have not been
expressed in words, either orally or in writing. The terms and agreement of
the parties can only be determined on inferred by examination of the actions
taken by the parties. The evidence of the contract is shown the interaction or
subsequent exchange between the parties.
• An Implied Contract can be either Implied in Fact or Implied in Law
Implied in Fact: This is a contract in which the circumstances imply the
parties have reached an agreement even though they have not done so
expressly.
An example would be… If you walk into a restaurant, sit down, order a steak,
and eat the steak. Upon completion of the meal you are expected to pay for the
meal.
Implied in Law: This type of contract can also be called a quasi-contract. It is
not as much of a contract as it is a legal determination. This is a situation
where one party would be unjustifiably enriched if the courts were to hold
that a contract did not exist.
An example would be… An unconscious driver is removed from a vehicle
wreck and rushed to an ER where he receives live saving treatment. He is
responsible for payment to the hospital for these services.

Bilateral vs. Unilateral Contracts

Bilateral: This is the more common of the two; a bilateral contract is
where the agreement involves a promise by both parties. Both parties are
liable to each other for performance of their respective promises.
An example would be… John offers to sell his car to mark for $3,000. John
promises to turn over the car and the title, in exchange mark promises to pay
the agreed upon $3,000.
In this example, both John and Mark have made promises. In the event of a
breach by either party, the other party would have options.

Unilateral: In this type of contract, only one party makes a promise to
the other party. This promise acts an inducement to get the other party to
perform some action. In this type of contract, the requirement that
acceptance be communicated to the offeror is not required. The offeree
accepts by performing the action. When the required action is complete the
offeror is liable to the offeree for payment as advertised. In contrast, the
offeree is not liable unless he/she performs the action. The offeree can walk
away from the offer without recourse.
An example would be a sign in the front yard that offers $50 to the first person
who removes and Oak tree that was blown down in a storm.
Another example would be a $500 reward for the return of my lost dog, Binky.
In these examples, the offeror is making a promise to induce the offeree to act.
1st To remove the Oak tree
2nd To return Binky to his/her owner

Let’s work through some examples

Give four examples of bilateral contracts…

1.
2.
3.
4.
Give four examples of unilateral contracts…

1.
2.
3.
4.

What type of contract is an “Offer to Purchase” contract that is commonly used
in the real estate Profession?

Bilateral or Unilateral

Elements required for Validity

Mutual Assent: First and above all, there must be a “meeting of the
minds”. There must be an expressed or an implied agreement. This is a
requirement that both parties enter into this agreement knowingly and of free
will.
To have a mutual assent, the agreement must be free of…
1. Misrepresentations: This in an innocent misstatement of a material fact. It
is also a misstatement that is relied upon by another individual that suffered
damages of some form. Note, that this is a MATERIAL fact.
2. Fraud: This is an intentional misstatement of a material fact that was
intended to deceive an individual, or was an intentional omission of a known
material defect.
3. Mistake: A mistake is a mutual misunderstanding between the two parties.
This does not involve a lack of judgment, ignorance, or unprofessional behavior
on the part of either party. It is simple a misunderstanding that prevents the
two parties from having a true “meeting of the minds”.
4. Duress, menace, and undue influence: This is to say that both parties
must be acting in free will and not under threat or fear of retaliation.

Consideration: This is by far the most complicated of the required
elements. We will study this element is detail in a further section, but for now.
Consideration is value promised by the offeror and/or legal detriment
promised or preformed by the offeree.

Competent Parties or Capacity: Both parties must have the ability to
enter into a legally binding contract. Both parties must also have the ability to
understand the terms and the implications of breach and his/her liability
within the terms of the contract.

In addition to employees who lack the authorization, children, mentally
disabled people, physically stricken and emotionally compromised people can
all be ruled as lacking the necessary capacity for entering into a contract.
A corporation is technically a entity and has the capacity to enter into a
contract.
Legal Purpose: Regardless of the form or elements found within a
contract, if the subject matter or purpose of a contract is illegal… The contract
is not valid
The courts will not enforce such a contract. It is said to be void “ab initio” or
void for the beginning.

Mutual Right to Remedy: Both parties must have an equal right to
remedy in the event of breach by the other party.

Void, Voidable, and Unenforceable Contracts
Void: This is a contract that never came into existence. It lacked legal
purpose or other required elements for validity. This contract is not
enforceable upon either party.
For example, a contract with a drug supplier for a purchase of illegal drugs
would be void.
Voidable: If one of the parties in a contract has the option to terminate
or cannot be held liable, this contract is said to be voidable. It is important to
note, that just because the contract is not enforceable on one party, this does
not release the liability against the other party in the contract.
An example would be a contract with a minor, the contract can be terminated
by the minor…. But this same contract cannot be terminated by the merchant
or other party if they have legal capacity.
Unenforceable: This is a contract that may have the required element
of validity but neither party can force the other party’s obligation.
An example of this could be the verbal agreement to purchase a home for
$100,000 cash. This contract would be unenforceable because the United
States Statue of Frauds requires the contracts for the purchase of Realty to be
in writing.
• It is important to note that in the above example, if the buyer appeared
with the $100,000 and the seller appeared with the deed, the sale could
go through and be a valid sale. The difference is that if either party
backed out, there would be no recourse for the other party.

Executed vs. Executory Contracts

Executed Contract: This is an agreement or contract in which both
parties have fully performed their obligations.
For example, if John was offering to sell his watch to Mark for $200 and Mark
accepts. This contract would be executed WHEN John handed over the watch
and Mark paid the $200. The obligation would have been fulfilled and thus
the contract would be executed.
In contrast…
Executory Contract: This is an agreement or contract in which one or
both of the parties have yet to full perform their obligations.
Using the previous example, If John offered to sell his watch to Mark for $200
at the first of the next month when Mark receives his paycheck. If Mark
accepts these terms and agrees to the purchase, this would be an Executory
contract because Mark has yet to pay and John has not turned over the watch.
These two have a valid contract, but are yet to perform their obligations to
each other.
“Subject To” Contracts and Contingencies
If a contract is a ”subject to” contract, it may fall in to one of these three
categories
1. The parties are immediately bound to the bargain, but they intend to restate
the deal in a formalized contract that will not have a different effect.
2. The parties have completely agreed to the terms; but have made the
execution of some terms in the contract conditional on the creation of a
formalized contract.

3. It is merely an agreement to agree, and the deal will not be concluded until
the formalized contract has been drawn up. This is shown in Masters vs.
Cameron (1954) 91 CLR 353
If a contract specifies “subject to finance”, it imposes obligations on the
purchaser.
1. The purchaser must seek finance
2. When offers of finance arrive, the purchaser must make a decision as the
suitability of the offers.
Inherent in these conditions is a necessary element of good faith.
Meehan v. Jones (1982) 149 CLR 571

What are four ideas for protecting you client (seller) when presented an offer
with a “subject to financing” contingency?

1.

2.

3.

4.

Consideration
I think it is important to take a good hard look at this elusive concept of
consideration. It is very possible a real estate professional can have a
successful career and never fully gain a working understanding of this
antiquated element of contracts.
Under the historical English common law, consideration was required
for a contract to be enforceable. Modern interpretation on the other hand has
viewed contracts to be enforceable simply upon the principle of promissory
estoppel.
Promissory Estoppel: A doctrine of law that stops one from later
denying facts which that person once acknowledged were true and others
accepted on good faith.

The Two Theories on Consideration…
Benefit – Detriment Theory: To constitute consideration, the contract
must include an element of consideration that is either to the benefit of the
promisor or to the detriment of the promisee.
Benefit to the Promisor
-orDetriment to the Promisee
A historical case to examine this concept is from the 36th year of the
Reign of Henry VI (1459 A.D.)
The central question, “Is a father’s flippant and off the cuff verbal promise of
money made to a suitor in exchange for the suitor’s marriage of the father’s
daughter a legal debt?”
The courts were asked to determine… Was there a benefit to the father? Was
there a detriment to the suitor?

The judges were unable to reach a unanimous opinion; some judges
decided that simply getting rid of the daughter served as viable benefit to the
promisor (father) and that having to marry the daughter served as a viable
detriment to the suitor (Promisee). The daughter herself was argued to be the
actual consideration and therefore this was a legal debt owed by the father.
Ultimately, these judges were overruled and this debt was ruled to be invalid.
I use this example for two reasons. First, this example can create a wildly
entertaining argument in a room full of students, and secondly it serves as a
good introduction for the second and modern theory of consideration.
The Bargain Theory: The contract is seen to be a product of an
exchange or bargain between the two parties. For example an “off the cuff”
remark to sell a car for $50 would not become binding if a bystander yelled,
SOLD. In this evolution of consideration theory, the courts will not investigate
the adequacy of the consideration, but will rather look for the evidence of a
“bargain” or agreement between the two parties. In this theory, the intentions
of the parties are investigated to determine if the contract reflects a true and
intentional negotiation or offer.

Consideration vs. Earnest Money…
I hope by now we have cleared up some of the misconceptions involving
consideration, but there are still some out there who will confuse
consideration and earnest money. They will tell your buyers that earnest
money is a legal requirement for an offer-to-purchase contract.

Earnest Money: This is money given in addition to an offer to purchase
to show sincerity on the part of the purchaser to go through with the deal if
the offer is accepted

Breach of Contract

Breach: A breach is a violation of any of a contract’s terms without legal
excuse.

If the seller defaults, the buyer has three alternatives…
1. The buyer may rescind or cancel contract
2. The buyer may sue for “specific performance”
3. The buyer may sue for “compensatory damages”

If buyer defaults, the seller has four alternatives…
1. The seller may declare the contract forfeited; the contract may well contain
provisions for the seller to retain the earnest money and or be due an
additional sum.
2. The seller may sue for “specific performance”
3. The seller may sue for “compensatory damages”
4. The seller may rescind (cancel or terminate)

Liquidated Damages: A specific sum that is agreed upon by both parties and
is to be paid in the event that a future breach occurs. This method is used when
establishing damages as a result of breach would be difficult to estimate.

Compensatory Damages: All costs or losses actually suffered and proved
caused by the breach. This includes incidental (expenses incurred by the non
breaching party) and consequential damages (known foreseeable loses).

Punitive Damages: Damages awarded to affected party to be paid by the
breaching party or wrongdoer as a form of punishment. This is rarely seen in
breach of contract cases.

Specific Performance: The nonbreaching party (usually the buyer) can ask
the court to order the breaching party (the seller) to perform the contract. This
does not apply to personal service contracts.

Three legal excuses for breach of contract

1. Discharge by agreement of both parties

2. Discharge by operation of law
* Change in law that makes action illegal
* Statue of Limitations
* Bankruptcy Decree

3. Impossibility of performance
* Natural disaster
* Fire or some other destruction of property

Important Contract Terms
Substantial Performance: This is a contract that is nearly completely
fulfilled, this level of performance may be sufficient to force payment by the
other party.
Option Contract: An option agreement is a contract between the
owner and a potential buyer… This contract allows the potential buyer to buy
a piece of property within an agreed upon window of time for an agreed upon
price if he or she chooses… The buyer does not have to go through with the
purchase. The owner does have to sell, if the option is exercised… This option
is usually accompanied by an option price or fee that is not refunded if the
buyer does not complete the deal.
Contingency: This is a requirement found in the offer or contract that
requires that some action, some duty, or some event be satisfied before the
contract can be executed… without satisfaction, the contract will be void.
1st Right of Refusal: The first right of refusal gives the owner of this
right the first chance of buying the property if the property owner decides to
sell… the owner is not required to sell, the owner of the right is not required to
buy…The price does not have to be set in advance.
Assignment: The transfer in writing of interest in a bond, mortgage,
lease, or contract

Novation: the substitution of a new contract in place of an older one,
this action terminates and replaces the old contract.

Mirror Image Rule: This rules states that if you are to accept an offer,
you must accept the offer exactly, without modifications; if you change the
offer in any way, this is a counter offer which kills the original offer.

Statute of Frauds
In some circumstances, a contract meeting all of the previous
requirements for validity must meet the legal requirement of being in writing
to be enforceable. The purpose of this requirement is to have written proof of
the contracts existence and to detail the terms.

The Six types of contracts that fall under the Statutes of Frauds…
1. Guaranty of debt contracts
2. Contracts involving an interest in Realty
3. Contracts impossible to perform within one year of formation
4. Contracts for the sale of goods priced at $500 or more
5. Premarital or Antenuptial Contracts
6. Promises of Executors for Personal Liability for debts of the deceased

The Six types of Realty contracts that fall under the Statutes of Frauds…
1. Real Estate Purchase Contracts
2. Leases of Realty
3. Mortgages of Realty
4. Easements
5. Creation of Life Estate
6. Real Estate Broker Contracts

Interpretation of a Written Contract

Parole Evidence Rule: A fully integrated and complete contract clearly
written cannot be contradicted, varied, or altered by evidence of the parties
prior negotiations, prior agreements, or contemporaneous oral agreements

General Rules of Interpretation…

1. The meanings of terms are assumed to have their ordinary meaning; if
technical, their technical meaning.

2. Any and all ambiguities will be construed against the party who drafted
the contract.

3. No contradictions… a written contract can be explained, but not
contradicted by trade practices, course of performance, or course of dealing.

Uncertainty of Incomplete Contracts
In the event a contract is formed that is incomplete or ambiguous on key
elements of validity. This contract is said to have “failed to form” or does not
exist. If a key element such as price or terms of the performance is left blank
or is yet to be determined, the parties have yet to have reached a “meeting of
the minds” and do not have a contract. A contract cannot simply agree to
agree at some later date.

The Listing Contract
The most common contract a real estate professional will enter into is
the listing contract. This contract will create an agency or fiduciary
relationship between you and the client, detail the terms of that relationship,
and detail the terms and scope of the contractual engagement. Unlike the
contracts that we commonly associated the purchase of a home, this contract
is not between a buyer and a seller… it is a contract between YOU and the
seller.

Requirements of a valid Listing Agreement…
1. Name and Signatures of both parties… This will also require your
appropriate firm information also be supplied
2. Formal property description
3. This contractual arrangement should be for a definite period of time… there
must be an expiration date.
4. Formal fee structure and amount to be paid to broker upon completion of
assigned task. This does not have to be a percentage; it can be a flat fee, any
hourly wage… or some other agreement.
5. Creation of an agency relationship
6. Agreement upon the type of listing the brokerage is to have
7. Asking Price

Termination of an Agency or Listing Agreement
1. Performance or success of the broker
2. Destruction of the property
3. Condemnation of the property

4. Bankruptcy of either party
5. Expiration of the Listing
6. Abandonment by the Agent
7. Cancellation by either party, or by mutual agreement
8. Death or insanity of either party
9. Revocation or lapse of broker’s license

The Four Types of Listings
Open Listing: This is a listing arrangement with a seller that is not
exclusive to any one brokerage. The seller has the right to employ any
number of firms to sell his/her real estate. In addition, the seller reserves the
right to pay only the agent who produces the buyer and can withhold payment
to all firms if the seller produces the buyer.

Exclusive Agency Listing: In contrast to an Open Listing, this type of
listing is exclusive to one particular firm. If an agent from ABC Realty signs
this seller, then only ABC Realty will market and have to right to collect the
listing portion of the sales commission. As with Open Listings, the seller still
has the right to produce a buyer, and withhold payment of the commission
because the agent did not produce a buyer.

Exclusive Right to Sell: Like an Exclusive Agency Listing, this type of
listing is limited to only one firm. In contrast to the previous two types, the
agent is due a commission regardless of who produces the buyer. The agent
need not be the procuring cause of the sale. The agent needs only to be able to
prove the existence of this listing to be entitled to his/her share of the
commission.

Net Listing: This type of listing arrangement is commonplace and
accepted in many industries and parts of the country. The seller gives the
broker a fixed price the he or she expects to be paid. The broker is then free
to sell the article on behalf of the buyer at any price equal to or greater than
the set price given by the seller. The agent is entitled to the entire amount in
excess of the set price.
For Example: John lists his farm with agent Bill. They have agreed that any
amount that Bill is able to sell the farm for in excess of $400,000 will be kept
by Bill. Bill sells the farm for $449,000. Bill is entitled to a $49,000
commission.
Although commonplace in some industries, the Tennessee Real
Estate Commission has ruled that Net Listings are forbidden for use by
licensed real estate agents in Tennessee.