Real Estate - Agency

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Fiduciary (agency)

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A legal relationship that is created when a person acts on behalf of another in business and legal dealings with others. (e.g., when a real estate broker acts on behalf of the principal (client) to negotiate purchase, sale exchange, management, or lease of real estate)

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Law of Agency

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the area of common law that governs fiduciary relationships.

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Agent as Employee

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An agent is employed to perform certain services for the employer and is subject to the employers close supervision and right to control his conduct in performing the services

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Agent as Independent Contractor

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An agent is employed by principal to deliver an agreed upon result or product, and his efforts or methods to achieve that result are not subject to close control by the principal. to qualify, an agent must:

1) have active real estate license,

2) have a written independent contractor agreement in place with he broker,

3) receive compensation based on performance,

4) pay all his own expenses,

5) make quarterly deposits for his own taxes.

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Principal

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the client, the person who employs another (the agent) to represent him n legal or business dealings with others. (e.g., a property owner, a buyer, or a tenant looking for a place to rent)

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Agent

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any person employed by a principal to represent the principal in business and legal dealings with third parties.

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Imputed Knowledge

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Under this doctrine, a principal is considered to have the same knowledge or notice of facts known by his agent or subagent and an agent is considered to have the same knowledge or notice that subagents have. If a principal has the same knowledge as his agent, he then would have liability for the agent’s acts.

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Vicarious Liability

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This is the liability for actions of another wherein there was imputed knowledge.

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Universal Agent

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an agent that has the broadest authority that can be given. He is authorized to perform all acts that can lawfully be delegated to a representative, including power of attorney.

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Power of Attorney

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this authorizes a person to act as an attorney in fact and sign contracts on behalf of the principal.

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General Agent

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an agent with authority to conduct a series of transactions of a continuing nature in a broad, but specified, range of business matters, for his principal. This is just a regular agent or property manager.

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Special Agent

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an agent who has limited authority to conduct a single transaction for a principal. His authority is convinced to a particular, specified task. ( a buyers agent employed to find a suitable property and negotiate one purchase on the buyers behalf)

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Third Party

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in an agency, this is the person with whom the agent deals as a representative of the principal. (a customer)

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Fiduciary Relationship

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an agent has this type of relationship with the principal, but not a third party

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*Methods of creating agencies

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*Methods of creating agencies - agency relationships may be created by 1) express agreement, 2) ratification 3) necessity, 4) law, 5) estoppel, 6) implication

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Express Agreement

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an agency is normally expressed this way between the principal and the agent. It may be oral or written. includes 1) listing agreements (listing agent) (these usually need to be in righting a la statute of frauds 2) buyer agency agreements (buyer agent) 3) property management agreements.

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Ratification

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Authority given after an act has already been performed. It begins with a person acting as an agent without authority to do so. If the principal accepts what the agent has done, and agrees to be bound by those acts, he ratifies those acts.

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Agency Created by Necessity

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an agent has expanded authority in an emergency (e.g., a broker employed to sell a property contracts for the repair of a burst water pipe while the seller is out of town.

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Agency created by Law

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a type of agency that depends on law. Like if your doing business in a different state than your real estate license is in. . A non-resident is forced to accept the head of state real estate dept. as his attorney in fact.

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Agency by Estoppel

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literally means to stop. this agency is created when a court stops a principal from denying an agency relationship exsists, after the principal has allowed a person to believe an agency relationship did exist. e.g., the principal intentionally or negligently face a third party the impression that another person was his agent and had certain authority, and the third party was damaged by the cat that actual authority did not exist.

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Agency through Implication

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An agency that is created when a person accidentally creates or assumes legal liabilities as an agent by acting in a manner that implies he is an agent.

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Actual Authority

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this is the authority that an agent has either express or implied by the principal.

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Express Authority

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this authority may be given orally or in writing, or by the ratifying conduct of the principal. Most of the time, this authority is expressed in the listing agreement.

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Implied Authority

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This is the authority an agent needs to perform the duties given by the express authority.

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Apparent Authority (Ostensible Authority

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this is the authority of an agent created by estoppel. It is authority that the principal, by words of conduct toward the other persons, has led others to believe the agent possesses, when there had been no actual authority granted.

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Subagent

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agents that assume the same responsibilities and liabilities to the seller as the sellers agent.

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Caveat Emptor

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latin for ‘let the buyer beware’ . . . This refers to the fact that the buyer must inspect the merchandise or house before he buys, for he would have no recourse for defects. This concept is less relevant today.

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Single Agency

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this is the practice of representing only one principal in any transaction, whether sale, purchase, lease, or exchange of property. . . . under this, the principal employs the agent to represent him exclusively.

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Sellers Agent

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An agent is this when he has entered into an agency relationship with only the seller in the real estate transaction.

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Buyers Agent

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this agent represents only the buyer in a real estate transaction regardless of who pays commission .

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Dual Agency

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this is an agent (or brokerage) who has entered into an agency relationship with both the buyer and seller in the same transaction. This may only happen after providing a written agency disclosure and obtaining the written consent of both parties. . . . an escrow agent commonly performs agency this way. A ______ ________ may not disclose that the buyer is willing to pay more than the offered purchase prices or that the seller is willing to accept less than the asking price; factors motivating either party; or any information that a party indicates in writing is confidential. A _______ ________ must reveal adverse material facts. A _____ _______ must:

1) take no action adverse or detrimental to either party's interest,

2) timely disclosure of any conflicts of interest,

3) advise to seek expert advice on matters relating to the transaction that are beyond the agent's expertise,

4) nondisclosure of confidential information from or about either party,

5) good faith and continuous effort to find a buyer for the property and a property for the seller.

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Non-Agency (facilitator or transaction broker)

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only allowed in some states. this is when an agent acts as a facilitator in a transaction, rathe than as an agent, and does not owe fiduciary duties to either party in the transaction.

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*Fiduciary Duties - Loyalty, Obedience, Reasonable Skill/Care, Accounting, Disclosure, Confidentiality.

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*Fiduciary Duties - Loyalty, Obedience, Reasonable Skill/Care, Accounting, Disclosure, Confidentiality.

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Loyalty

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The primary duty of an agent. requires an agent must 1) act at all times solely in the best interest of his principal to the exclusion of all other interest. 2) take no action that is adverse or detrimental to his principals interest in the transaction 3) not take advantage or make personal profit from any confidential information. Agent has to stick to agreed upon compensation. An agent must seek expert advice. Actually a lot of stuff you may want to re-visit.

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Obedience

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This duty requires that the agent obey any lawful instructions from the principal. (e.g, if the seller instructs the agent to call before showing a property, the agent has to do that, but if the seller says don’t show the property to any purple people, the agent can say that is illegal and terminate the agency relationship.) The agent does not have to obey anything unlawful, and can terminate agency relationship if asked to perform unlawful acts.

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Reasonable skill and care

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the agents duty to exercise competence. An agent can not plead ignorance, whether he has practiced for 1 day or 31 years.

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Accounting

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the agents duty to provide honest handling of all money and property received on behalf of the principal. Must protect himself from commingling and conversion.

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Commingling

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mixing money in your own or someone else account.

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Conversion

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The misuse or misappropriation of a principals funds, whether for ones own benefit or for the benefit of others.

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Disclosure

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The agents duty to fully disclose all relevant and material information, unless obtained through a previous fiduciary relationship, that the agent knows would pertain to the scope of the agency.

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Confidentiality

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an agents duty of safeguarding the principals confidence and secrets and not to use or communicate information if disclosure could prejudice or damage the principal, even after termination of the agency relationship. When representing a seller, the agent cannot reveal facts suggesting the seller has an urgency to sell, even at a lesser price. When representing a buyer, the agent cannot disclose facts indicating the buyer might pay a higher price than offered.

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* Agent obligations to third party - reasonable skill and care, honesty and good faith, disclosure of all material facts not readily ascertainable.

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* Agent obligations to third party - reasonable skill and care, honesty and good faith, disclosure of all material facts not readily ascertainable.

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honesty and good faith

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an agents duty to a third party to not engage in misrepresentation.

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Misrepresentation.

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material communication that is contrary to fact upon which a party relies to his detriment. It may exist through either commission or omission. this only applies to factual statements, and not opinion. ("this house has the best view in the neighborhood” is understood as opinion and is considered Puffing

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Misrepresentation by Commission

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a statement, oral or written, that was material to the formation of the contract, made contrary to fact, that another person has relied upon to his detriment.

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Misrepresentation by omission

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occurs when a person has a duty to state a fact in order to prevent another person from acting to his detriment and fails to do so.

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Innocent Misrepresentation

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this is communication of a fact reasonably believed to be true or not false, but that was in fact false.

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Negligent Misrepresentation

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the communication of a fact believed to be true but made without reasonable grounds for the belief, and that was in fact false. . . . this is common, and it is where the agent should have known better, but because he did not check the facts, he made an erroneous statement.

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Fraudulent Misrepresentation

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the communication of a fact that was believed or known to be false - this is normally committed with the intent of deceiving someone

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Material Fact

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a fact that substantially adversely affects the value of a property or a party’s ability to perform his obligations in a transaction or operates to materially implore or defeat the purpose of the transaction. (e.g., defects in the property) . . . an agent has the obligation to disclose all _______ _______ under the common law of agency. There are honestly a lot of these things : Physical defects, latent defects, local zoning a planing, school district boundaries, utility and taxation districts, flight paths, taxes and assesments (Homeowners Associations may be super expensive, so check), Liens (even if a lien is not revealed in a title report, it may still be an issue from contractors if the house has been fixed up a lot and has some construction liens on it.)

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Latent defects

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these are defects that are not readily observable. . . soil conditions, easements, pest infestation, toxic mold, etc. Even if property is sold as is, the client and agent have a duty to disclose all known material _______ defects to a buyer. This can be handled by the Sellers Property Disclosure if you are a sellers agent or a home inspection, if you are a buyers agent.

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Errors and omissions Insurance

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a form of professional liability insurance brokerages carry. It covers agents from negligence and misrepresentation. It does not cover claims involving illegal activity, fraud, or personal real estate transactions of licensee.

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Multiple Listing Service

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consists of local brokers who circulate listings amongst themselves.

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Co-op Transaction

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this is a transaction wherein the seller pays all the commissions.

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*Termination of Agency

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*Under common law, an agency relationship can be terminated by operation of law or by acts of the parties to the relationship.

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Termination by operation of law

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termination by 1) expiration of term, 2) death of either party 3) insanity of either party, 4) bankruptcy of either party 5) change in law, 6) change in circumstance (if property is found to be contaminated, this will dramatically change the value of the prperty and cancel the agents authority and duty to find a purchaser at the listed price) , 7) agency impossible or impractical (if it is determined the owner does not have clear title.) 8) agent going out of business 9) destruction of the subject matter (if the house was destroyed by fire during the listing period)

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Termination by acts of parties

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Termination by 1) mutual agreement, 2) performance (when the purpose of the agency is completed) 3) Revocation by the principal (the principal can revoke the agency relationship, but could be liable for damages for breach of contract.) 4) abandonment by the agent (if agent as indicated through inactivity that he has chosen not to represent the principal. 5) breach of agency duties (if an agent has violated agency duties, the principal can terminate the relationship without obligation to pay damages. 6) agent resignation. (an agent may resign from agency relationship at any time. He can not be sued for to perform loyalty, but he can be held liable for damages caused by breach of contract.

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*Commission - this can be any type and amount negotiated with a principal, such as a flat amount, fees for services, a percentage of the sales price, or an amount in excess of a net amount to the seller. It is not limited by any law or rules setting a maximum.

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*Commission - this can be any type and amount negotiated with a principal, such as a flat amount, fees for services, a percentage of the sales price, or an amount in excess of a net amount to the seller. It is not limited by any law or rules setting a maximum.

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Sherman Antitrust Act

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an antitrust law that prohibits anticompetitive conduct, whether by two or more spirit entities participating in a common scheme or plan intended to unreasonably restrain trade or by a single entity attempting to create a monopoly. The laws affect real estate by prohibiting 1) any conspiracy to fix prices (i.e. commission or commission spits, 2) group boycotts intended to harm or destroy a competitor, 3) certain tying agreements

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Price Fixing

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Real estate agents would be involution of antitrust laws, and guilty of this if they were to agree to fix or stabilize their fees or commission rates, whether formally, informally, or even innocently. (i.e. you can not say what the going commission rate is, and you can not say that brokers who charge less cannot provide full service.

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Group Boycott

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It is illegal according to antitrust laws if if two or more brokers agreed to refuse to deal with a third broker (perhaps because of discount fees) in order to force him to change his method of doing business or drive him out of business.

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Tying Arrangement (or tie-ins)

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an agreement to sell one product only on the condition that the buyer also purchase a different product. (a list back agreement is an example)

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List-back Agreement

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an illegal agreement wherein a developer sells land to a builder, conditioned on the builders agreement to list back the improved property with he developers brokerage firm, for sale to individuals.