Agency Relationships and Contracts

Asian Real Estate Association of America

(AREAA) was established in 2001 with the mission to assist real estate professionals who serve Asian-American communities.

The National Association of Hispanic Real Estate Professionals

(NAHREP) was established in 1999 with the mission to assist real estate professionals to increase Hispanic homeownership and to serve Hispanic consumers.

National Association of Real Estate Brokers

(NAREB): was established in 1947, is comprised primarily of African-American real estate agents. Members of the NAREB organization are called Realtists ®.

Requirements for Validity of a Contract

1. Parties capable of contracting. 2. Consent - offer and acceptance. 3. Lawful object or purpose. 4. Adequate Consideration

Dual Agent

A dual agent is an agent who represents both the buyer and the seller in a given transaction. In all states that allow dual agency disclosure is required.

Estoppel

A rule of equity which holds that one who causes another to rely on his or her words or action shall be estopped (prohibited) from later taking a contrary position detrimental to the person who so relied.

Errors and Omissions Insurance

AKA E&O Insurance: protects against mistakes that can result in enormous liability.

Finder's fee

AKA Referral Fee: is a payment made by a person or company to another person for referring a customer to the first person or company.

Protection Clause

AKA Safety Clause: provides that the broker will earn the full commission under certain circumstances for a sale made after the termination of the agency.

Deliberate Misrepresentation

AKA intentional misrepresentation or fraud the suggestion, as a fact, to a party that which is not true committed by another party who do not believe it to be true and who makes the suggestion with the intent to deceive the first party, who was deceived to his or her detriment, such as by being induced to enter into a contract.

Uninformed Misrepresentation

AKA negligent misrepresentation: an assertion not warranted by the information of the party making the assertion that an important fact was true, which was not true, relied on by another party to that party's detriment.

Agency coupled with an interest

Agency that can be irrevocable - if the agent has a financial interest in the subject of agency distinct from the compensation that may result from his/her performance as an agent. Such as if the agent is a co-owner of a property and the other owners authorize the agent to represent the property for sale.

Implied Agent

Agent created by implication.

Universal Agent

Agent given power of attorney to act on behalf of a principal for an unlimited range of legal matters.

General Agents

All other agents who are not special agents.

Disclosure of Agency Relationship

All states require brokers to inform parties to a real estate transaction as to whom the broker is representing.

Designated Agent

An agent authorized by a real estate broker to represent a specific principal to the exclusion of all other agents in the brokerage. This agent owes fiduciary responsibilities to the principal, but other agents in the brokerage my represent other parties to the same transaction without creating a dual agency.

Special Agent

An agent employed by the principal for a particular act or transaction or limited number of specific transactions. Nearly always a real estate broker as they are employed by the principal only to negotiate the sale or purchase of a property or properties.

Faithful Performance/ Obedience

An agent has a duty to faithfully perform agency duties in accordance with the principal's instructions as long as such instructions are in compliance with law and ethics.

Accounting

An agent is responsible for keeping careful records of all funds received from, or for, a principal or customer. Must treat all funds received on behalf of clients or customers as trust funds. No commingling.

Disclosure

An agent must always disclose to the principal all facts known to the agent that may affect the transaction.

Confidentiality

An agent must always keep the principal's financial condition and personal life confidential.

Loyalty

An agent must always put the interests of the principal above the interests of others, including the agent's own self-interest.

Utmost Care

An agent must perform his or her agency duties diligently and with utmost care, utilizing the skills the agent has acquired through education and experience.

Subagent

An agent of an agent. Therefore because a salesperson is an agent of a broker and a broker is an agent of a principal, the sales person is a subagent of the principal.

Termination by force of law

Bankruptcy Change in Law Loss of License

Listing Agreement

Between agent and a principal who is a seller of property.

Property Management Agreement

Between principal who is owner of (usually rental) properties and is hiring the agent to manage the properties rather than sell them.

Termination by Mutual Agreement

Both parties agree to terminate

Agency law is governed by two sets of laws:

Common law and statutory law.

Sufficient Consideration

Consideration is something of value, such as money, property, or services.

Express Contract

Contract in which the parties declare their intentions in words, weather orally or in writing. Nearly every real estate transaction must be express and because of the statue of frauds, must be in writing.

Destruction of Property or Death of Principal or Agent

If property is destroyed, if principal or agent dies or becomes incapacitated the agency will terminate. EXCEPT if the principal is a Corporation since a corporation is considered a separate entity.

Area of Competence

If the client is in need of information or assistance that is outside the area of competence of the agent, the agent has the responsibility to refer the client to persons of competence in that area.

(Agency by) Implication

May be created if someone reasonably believes that someone else is acting as his or her agent and the agent does not correct the impression.

The largest real estate trade association in the United States is the...

National Association of Realtors ® (N.A.R.), which was established in 1908. Members are called: Realtors ®

Ostensible Agent

Ostensible agency is created when a principal intentionally or by want of ordinary care, causes a third person to believe another to be his agent who is not actually employed by the principal.

Commingling

Placing funds belonging to client into accounts also holding the agent's funds or vice versa. Is grounds for revocation or suspension of an agent's license.

Bilateral Contract

Promises are made on two sides.

Unilateral Contract

Promises made by only one side.

Expiration of Agency

The agency relationship automatically terminates when its term ends. If the agreement did not include a terminations date (which is required if it is an exclusive agency) then the agency would expire after a reasonable time. Without a stated termination date, either party my terminate the agency at any time without liability, although agent might be entitled to reimbursement for expenses incurred before the termination.

Duties to Client/Principal (Buyer, seller, tenant, or landlord)

The agent owes fiduciary duties to the principal - to treat the principal with the utmost care, honesty, trust, and loyalty. Includes:

Equity

The quality of being fair and impartial or the value of a mortgaged property after deduction of charges against it.

Conversion

The unauthorized use of another's funds for one's own use, and is criminal offense.

Lawful Object or Purpose

To be valid, the object or purpose of a contract must be lawful when the contract is made and possible when the contract is to be performed.

Express Agreement.

Way to create agency relationship. Unless required by the statute of fraud - can be an oral agreement.

Completion/Performance

When the purpose of the agent's job is accomplished (i.e. sale of a property) the agency ends.

Procuring Cause

a common law legal concept developed by the courts to determine the proportioning of commissions among agents involved in a real estate transaction.

equal dignities rule

a principal of law that requires that the authorization of an agent be of the same formality as is required for the act(s) the agent is hired to perform.

Nonagent

acts as a middleman who brings the parties together and lets the parties do all of the negotiating among themselves. AKA: transactional broker, facilitator, intermediary, coordinator, or contract broker. Does not owe fiduciary duties to either party.

Contract

an agreement to do or forbear from doing a certain thing.

Specific Performance

an equitable remedy commonly sought by one party to a real estate contract seeking a court order requiring the other party to perform what was specifically stated in the contract (such as transferring the deed to the property), as an alternative to awarding damages.

The Real Estate Settlement Procedures Act (RESPA) prohibits referral fees ...

be paid to a real estate agent for settlement services not actually performed by the agent.

Ratification

by accepting or retaining the benefit of an act made by an unauthorized agent or an agent who has exceeded his/her authority a principal creates an agency via ratification. Principal cannot ratify part of a transaction as ratification of part is ratification of the who transaction.

If a broker supplies financing to build a house with the stipulation that the broker will have the listing to sell the house, the broker's agency is

coupled with an interest and irrevocable.

Estoppel (Agency)

created where (1) an unauthorized person performs actions as if he or she were the agent of a principal. (2) the principal is aware of the conduct, and (3) the agent's actions and the principals actions (or inactions) cause a third party to rely on the supposed agent's actions, believing the actions are authorized by the principal.

Common law

developed over time by tradition and law courts and is often referred to as case law.

Unilateral Termination

either party decides to terminate agency agreement however terminating party my be subject to liability for breach of contract.

RESPA applies only to...

first-lien mortgages on residential properties consisting of one to four dwelling units, but many states have anti-kickback regulations that apply more broadly.

In negligent misrepresentation the party who made the misrepresentation...

had no reasonable grounds for believing that the representation was true when making it.

Violations of RESPA's anti-kickback rules ...

include criminal penalties of imprisonment of up to one year and civil penalties of up to $ 10,000.

Implied contract

is not written or spoken but implied by the actions of the parties.

Statute of Frauds

law that determines what kinds of contracts must be in writing to be valid. Typically these contracts are not void but are unenforceable.

Manner of Creation (of contract)

may be express or implied.

A licensee who makes uninformed misrepresentation...

may be liable for damages in an amount equal to the difference between the purchase price and the actual value of the property. Such an act may also subject the licensee to suspension or revocation of his or her license.

Statutory law

often based on and informed by common law, is law enacted by legislation, i.e. state legislatures, local governments and regulatory bodies.

Except in a designated agency situation, dual agency would arise in a case where...

one salesperson of a broker represents the seller and another salesperson of the same broker represents the buyer.

An agent who is a procuring cause of a sale ...

originated a chain of events that resulted in the sale and is thereby entitled to at least some part of the total commission generated by the sale.

Ratify

sign or give formal consent to (a treaty, contract, or agreement), making it officially valid.

Power of Attorney

the authority to act for another person in specified or all legal or financial matters.

a dual agent must not disclose price concessions from either party without...

the consent of the other party.

If the seller committed the intentional misrepresentation...

the defrauded party may rescind the contract or sue for damages.

If a licensee commits intentional misrepresentation...

the licensee may be sued for damages (and in many states punitive damages) and likely have their license revoked.

Significant partial performance of a unwritten contract covered under the statute of frauds is generally deemed ...

to be sufficient evidence of the contract, thereby excusing the lack of writing. If the contract has been fully performed, the statute of frauds does not apply.

An agent who receives compensation for referring a client to a title company would likely be in violation of RESPA because...

very few agents actually perform the services performed by title companies.

Typically, a protection clause provides that the broker ...

will earn the full commission if the property is sold within a specified number of days after the termination of the listing to a buyer with whom the broker has negotiated on the property.