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64 Cards in this Set
- Front
- Back
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Agency
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When one person (called the principal) delegates to another person (called the agent) the right to act on the principal's behalf.
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What are the three levels of agency?
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Universal, General and Specific
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Universal agency
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The principal gives the agent legal power to transact matters of all types on the principal's behalf. An example is an unlimited power of attorney.
Universal agencies are rarely encountered in practice, and courts generally frown on them because they are so broad. |
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General agency
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The agent is given the power to bind the principal in a particular trade or business.
i.e. A salesperson is a general agent of the sponsoring broker. Another example is that of a property manager for a property owner. |
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Special agency
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empowers the agent to perform a particular/special act or transaction.
i.e. Real Estate listing. Another is a power of attorney to sign a deed on behalf of someone who will be out of the country. |
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The principal in an agency relationship can either be a natural person or a
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legal person such as a corporation.
Likewise, an agent can either be a natural person or corporations such as a real estate brokerage company. |
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Third parties
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The persons and firms with whom the principal and agent negotiate. In other words, persons who are not parties to a contract but who may be affected by it.
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When a broker represents a seller, the buyers are third parties, often referred to as _______________. The seller is often referred to as the _______________.
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Customers.
Client. Same applies to a broker representing a a buyer which turns the sellers into becoming the third parties, and the buyer is the client. |
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When you see the phrase "principals only" in real estate advertisement, this means that
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the owner wants to be contacted by persons who want to buy and NOT by real estate agents who want to list the property.
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Implied authority
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Agency authority arising from industry custom, common usage, and conduct of the parties involved.
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Principal
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a person who authorizes another to act.
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Ostensible authority (apparent authority)
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Ostensible firstly means: stated or appearing to be true, but not necessarily so.
So in this ostensible authority case, it is conferred when a principal gives a third party reason to believe that another person is his agent even though that person is unaware of the appointment. i.e. You give your house keys to your plumber with instructions that when he finished unclogging the sink lines he is to lock the house and give the key to your neighbor. Even though you do not expressly appoint your neighbor as your agent, once the plumber gives the key to your neighbor, your neighbor becomes your agent with regard to that key. Therefore the plumber has every reason to believe that your neighbor is your agent. |
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Agency by ratification
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One established after the fact
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Agency by estoppel
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results when a principal fails to maintain due diligence over her agent and the agent exercises powers not granted to him. If the principal's conduct causes a third party to believe the agent has these powers, an agency by estoppel has been created.
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Agency coupled with an interest
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said to exist when an agent holds an interest in the property he is representing. i.e a broker is a part-owner in a property he has listed for sale.
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Fiduciary relationship
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A fiduciary (agent) relationship is a relationship that requires trust, honesty, and exercise of good business judgement.
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Faithful performance (obedience)
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the agent is to obey all legal instructions given by the principal and to apply best efforts and diligence to carry out objectives of the agency.
-- A broker who promises to make a "reasonable effort" or apply "diligence" in finding a buyer and then does nothing to promote the listing gives the owner legal grounds for terminating the listing. |
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Once an agency is created, the agent must be loyal to the principal. The law is clear in all states that in an employment agreement, the broker and broker's sale staff occupy
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a position of trust, confidence and responsibility. Also, the broker is legally bound to keep the principal fully informed of all matters that might affect the sale of the listed property and to promote and protect the principal's interests.
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State laws require that all offers be submitted to the owner
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no matter what the offering price and terms.
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Although the broker has a duty to disclose all material facts of a transaction, LEGAL interpretations must be avoided because giving legal interpretations of documents involved in a transaction can be construed as
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practicing law without a license, an act specifically prohibited by real estate licensing acts.
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For the purpose of holding clients' and customers' money, laws in nearly all states require a broker to maintain a
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trust account.
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AS a rule, a broker will have one trust account for properties listed for sale and another trust account for rental properties managed by the broker. Failure to comply with trust fund requirements can result in loss
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of one's real estate license. State-conducted surprise audits are made on brokers' trust accounts to ensure compliance with the law.
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Commingling
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The mixing of clients' or customers' funds with an agent's personal funds. This is grounds for suspension or revocation of the broker's real estate license.
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The United States Department of Housing and Urban Development (HUD) requires FHA buyers to be notified and advised about the possibility of lead-based paint in homes built prior to the 1978 ban on such paint. HUD will not permit __________________ without a signed form delivered to the lender.
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FHA financing
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In real estate, a red flag is something that would warn a reasonably observant agent that there may be an underlying problem. Thus in turn, since the agent is responsible for disclosing this to any prospective buyers, the agent is NOT responsible for knowing the underlying problem that produces the red flag. True or False?
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True
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Puffing
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refers to nonfactual or extravagant statements that a reasonable person would recognize as exaggeration.
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The principal's primary obligations to the agents and the broker's obligations to the sales associates are:
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-Compensation
-Reimbursement ( i.e expenses such as if an agent had to pay a plumber to fix a broken pipe for owner, the agent could expect reimbursement from the owner. - Indemnification (compensating [the agent] for loss or harm -Performance |
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Because a sales associate is an agent of the broker and the broker is an agent of the principal, the sales associate is called a _____________ of the principal.
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subagent
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Cooperating broker
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The broker who located the buyer
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In the case of figuring out who the cooperating broker is an agent for, what are the two theories in traditional view?
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1. Everyone is an agent or subagent of the seller because the seller has an employment contract with the listing broker and the cooperating broker has his rights through that employment contract.
2. Since the cooperating broker has no contract with the seller (only an agreement to share with the listing broker) and none with the buyer, he is the agent of neither. |
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Middlemen
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A person who brings two or more parties together but does not represent either party
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Dual Agency
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Representation of two or more principals in a transaction by the same agent.
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The two key factors in a disclosure of dual agency are:
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1. It is the principal's decision to make, not the broker's.
2. The principals must understand how serious the conflict of interest is by emphasizing on informed consent. |
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Property report
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Government-required information/extensive disclosures that must be given to purchasers in subdivisions.
--Property reports also discloses payment terms, what happens if there is a default, any soil problems, distance to school/stores, any additional costs to expect. |
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Is the property report a government approval of the subdivision?
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NO. It is strictly a disclosure of pertinent facts that the prospective purchaser is strongly encouraged to read before buying.
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The purpose of federal antitrust laws such as the Sherman Antitrust Act is to
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promote competition in an open marketplace.
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Price fixing
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Two or more listing brokers conspiring or agreeing to charge a fixed fee, having an anticompetitive effect. Result of this could make the licensee serve time in federal penitentiary in addition to paying a substantial fine.
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Boycotting
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Two or more people conspiring to restrain competition by excluding certain brokers. This is also in violation of the Sherman Antitrust Act.
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Errors and omission insurance (E &O)
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Insurance company that will defend the broker and pay legal costs and judgements. Brokers will just pay an annual fee to this insurance. This formed due to the rising trend of more and more brokers being sued.
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To what does broker cooperation refer? How is it achieved?
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It is referred to the sharing of a single commission fee among the various brokers who brought about a sale. It is achieved by an agreement between the listing broker and the cooperating brokers.
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What is the law of agency?
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Refers to the legal responsibilities of a broker to his principal and vice versa.
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An agent's authority arising from custom in the industry is identified as
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implied authority.
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A broker owes fiduciary responsibilities to
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The owner of the property listed by him.
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A broker was part owner of an apartment building along with two co-owners. When they decided to sell the building , the broker was named as the agent in the listing agreement. The broker thus held an agency
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coupled with an interest.
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A broker may act as an agent for both parties in a single transaction only with the permission of
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both parties (the buyer and seller)
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Katy introduced an owner to a prospective buyer. The owner and prospect conducted negotiations between themselves without the assistance from Katy. The role of Katy was that of a
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middleman
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What should the broker do with earnest money if the seller defaults(fails or backs out)?
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Return it to the buyer. The buyer deposited the earnest money to show good faith toward the purchase.
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An owner who gives false information regarding the listed property
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may have to pay damages to the broker.
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An agent who fails to investigate the cause of an apparent underlying defect in a property which he is selling may be found
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liable for civil damages. This also includes investigations made by a person who is not professionally competent issued by an agent.
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Can an agent be protected from liability to disclose defects in a property by stating in writing that the property is being sold "as is"?
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No because he may still be liable for having withheld material facts about the property.
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If a principal asks an agent to participate in an illegal or unethical act in selling a property, the agent should
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have no part in it. The real estate department lacks jurisdiction over this matter and could not take any action against the principal. The broker should discourage the principal, but have no part of it.
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A broker can be indemnified (security against legal responsibility; compensation) against legal actions by those with whom he deals by purchasing
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errors and omissions insurance. E & O insurance.
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Puffing or puffery
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is a non-factual statement which should be recognized by a reasonable person as exaggeration. Puffery should be used with extreme care because of the potential liability for misrepresentation
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Should a broker breach his fiduciary responsibility to his principal, he may find himself subject to:
- Disciplinary action by the real estate department - Civil action by the principal - The possible loss of his license EXCEPT he won't be subject to |
Criminal prosecution
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The obligation of an agent to a principal includes:
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Obedience of lawful instructions.
--It is the principal owes the agent compensation, reimbursement, indemnification, and performance. |
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In dealing with third parties in a real estate transaction, a broker should always make it clear to third parties of his obligation of
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the loyalty to the principal
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The relationship of a sales associate to the employing broker is
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subject to all laws and rules of agency so it is a general agent.
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When acting as a cooperating broker, an agent should make it clear to all parties in the transaction
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whether he is acting in the interest of the purchaser or seller
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When a buyer employs a broker to represent him in negotiations for a property,
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eliminates the problem of a divided broker loyalty and can base his offers on the net amount the seller will receive from the sale.
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The detailed disclosure form of property defects (or lack thereof) on a form are often produced by a real estate trade association and called
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Seller disclosure statements. These are just detailed disclosure of property defects.
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The requirement that prospective buyers be given a HUD property report applies to
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new subdivision lots being offered to residents of another state.
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Benefits of buyer representation to the buyer include:
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-The buyer's broker is loyal to the buyer
-The buyer's broker CAN investigate ALL properties offered for sale by owners. - The buyer's broker can either be paid by the seller or the buyer. |
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Violation of federal anti-trust laws on price fixing can result in:
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-Criminal penalties
- Civil penalties - Time in federal penitentiary --Fines are hardly ever assessed. |
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If brokers in a given region were to agree to charge the same commission rate, with no variation between real estate offices, this would be an illegal activity known as
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Price fixing. Price fixing, as well as boycotting and allocation (distribution of resources or duties for a particular purpose) of markets, are all violations of the anti-trust laws.
Steering is a Fair Housing violation, not anti-trust. |
