California Real Estate Practice Chapter 1 Rockwell Slides

Finder

(Middleman) It's also possible for a licensee to work with the parties without entering into an agency relationship with either of them. A person, licensed or not, may act as a finder or middleman by introducing an owner of real property and a prospective purchaser. So long as he does not participate in further negotiations, the finder will not be subject to the fiduciary obligations that apply to an agent. Keep in mind that in a standard transaction, you'll be acting as an agent for either the seller or the buyer.

Property inspection

-Agent must inspect property -Inspection required only for one- to four-unit residential properties You DON'T need to: investigate either party's financial condition independently verify statements from a reasonably reliable source Related to the duty to disclose material facts is the inspection requirement for residential property. When a home is for sale, California law requires the listing agent and the cooperating agents to make a reasonably diligent visual inspection of the property. The agents aren't held to the same standards as a home inspector or appraiser, but they must use the same care and skill as a reasonably prudent real estate licensee. An inspection is required only for sales of residential property with up to four units. Even when the inspection requirement applies, agents don't have to inspect inaccessible areas on the property, off-site areas, or the common areas of a condominium. Nor are agents required to examine public records or permits associated with the property. If an agent discovers any material facts during the inspection, he must disclose them to prospective purchasers. Naturally, an agent representing the seller should also inform the seller about anything he discovers. Aside from inspecting the property, you do not have to investigate any matters that you have not specifically agreed to investigate. Ex. You have no duty to investigate either party's financial position. Also, you don't have to independently verify statements that come from a reasonably reliable source. So if a title company employee tells you something about the condition of the property's title, you can take her word for it. You don't need to go out and check the accuracy of her statement. Narrator Example: Of course, if you do agree to investigate a matter, you must do so with the skill expected of a competent real estate agent, and then disclose what you find out to your client. Suppose the buyer asks what the property's zoning designation is, and you agree to check into it. You should contact the county planning or building department and find out for yourself. Don't just casually ask the seller what the zoning is and then pass on the seller's answer to the buyer. If the seller happens to be wrong, you could be accused of negligence.

Negotiation

-Counteroffer vs. Offer Another important benefit of buyer agency is that you are free to help your buyer negotiate the best terms for the property. Many buyers don't like the negotiation process. They don't want to pay too much for the home, but they don't want to lose the home either. And naturally, the more they want the home, the more uncomfortable they are negotiating for it. You can be invaluable to your buyer at this point in the transaction. You are more experienced at negotiating, you are more objective, and you know more about the housing market. This puts you in a much stronger negotiating position than your buyer. With your help, your buyer can get the property on the best possible terms. Suppose you are working with first-time buyers. They are very interested in a particular house, but they don't know how much they should offer for it. 1st Because of your expertise, you can tell them what a reasonable offer would be. You can also tell them how to structure the offer, including such items as the amount of the deposit and downpayment, the closing date, and what closing costs they should offer to pay. Next The buyers submit their offer and the sellers reject it. Your buyers panic and immediately want to offer the sellers a lot more money. Then But you're an old hand at negotiating. You get the buyers to calm down and you help them work out a revised offer. This second offer is accepted. Because of your negotiating skills, the buyers got a good house for a very reasonable price.

Determining what is a material fact

-Disclosure not necessary Sometimes it can be difficult to tell if a piece of information is a material fact that must be disclosed. In regard to information concerning the property, if it doesn't affect either the property's physical condition or its title, it probably isn't a material fact. Examples might include that the property was once the site of religious or political activity, or that a crime or a death occurred on the property. Even though some people might consider the property stigmatized, you are not obligated to disclose these issues as latent defects. However, there could be a situation when you would be required to disclose criminal activity to a buyer, not because of your duty to disclose latent defects but because of your duty of good faith. California law protects sellers and real estate agents from liability for failure to disclose deaths on the property, if the death happened more than three years ago. However, if the buyer asks you directly, the duty of good faith and fair dealing requires you to answer truthfully. Also, if there has been a death on the property in the last three years, and the death could affect the desirability of the property to the buyer, you may need to disclose it. If a previous occupant of the property had AIDS, you should NEVER disclose this information, even if that person died of AIDS. It might be necessary to disclose the death, but you shouldn't disclose the cause of death. To do so might constitute discrimination on the basis of disability and medical condition.

Disclosing a dual agency

-Dual agency is legal only if both principals consent in writing One other important disclosure that an agent must make is whether or not he is working as a dual agent. A dual agency occurs when the agent represents both parties to the transaction. Dual agency is rarely the best arrangement for the principals, since it is difficult for an agent to represent both parties with uncompromised loyalty. Dual agency is legal in California, provided that both principals consent in writing to the dual agency. Also, you will need to disclose how you will be compensated. Under California law, an agent who will receive compensation from both parties must disclose that arrangement in writing.

Finder or middleman

-Finder: No agency relationship with either party -Finder CAN'T participate in negotiations A person may act as a finder or middleman in a transaction without acting as an agent to either party. The finder can only introduce a seller and a prospective buyer. Any actions beyond that will create an agency relationship. A person can be involved in a transaction without forming an agency relationship with either party. Such a person is known as a finder or middleman, and may be compensated with a finder's fee. A finder may arrange an introduction between an owner of real property and a prospective purchaser, but the finder may not perform any other activity in the transaction. A finder does not need to have a real estate license to receive a finder's fee. If you are acting as a finder, you don't owe fiduciary duties to either party. In fact, this is one situation when you should avoid fulfilling fiduciary duties. Anything beyond a mere introduction will create an agency relationship. As a licensee, if you participate in the negotiations or take any action on behalf of either party, you will be considered an agent, with all of the duties that agency entails. Crossing the line from finder to agent without making a proper agency disclosure can subject you to disciplinary action and loss of your finder's fee.

Types of buyer-paid fees

-Hourly fee -Percentage fee -Flat fee -Retainer These alternative methods of compensation generally come into play only if you have broadened your property search beyond the multiple listing service. If your buyer ends up purchasing a property that is for sale by owner, for example, you want to make sure you will be compensated for your time.

Termination of Agency

-Mutual agreement -Unilateral Action -Termination by law An agency relationship can be terminated by the actions of the parties or by operation of law. Termination can occur by mutual agreement or unilaterally, or through the death or incapacity of the agent or principal, or destruction of the subject property. An agency can always be terminated by mutual agreement between the agent and the principal. For instance, a principal and an agent often choose an agency termination date at the same time they create the agency relationship. An agency can also be terminated unilaterally by either party, or it can be terminated by law.

Vicarious liability

-Principal liable for harm caused by agent A principal is vicariously liable for harm caused by his agent even if the principal was unaware of the agent's actions. However, an innocent principal can sue his agent to recover the amount of any damages he had to pay to an injured party. Narrator: Sometimes an agent makes mistakes in the course of his duties. In certain circumstances, the principal can be liable for the harm caused by those mistakes. Liability for harm caused by another person is called vicarious liability. Note that vicarious liability also applies to the broker/salesperson relationship. A real estate broker can be held vicariously liable for harm caused by one of her salespeople, even if she did not participate in the unlawful act.

Agency Disclosure Laws

-Reduces buyer confusion -reduces danger of inadvertent dual agency California law requires real estate agents to disclose whether they represent the seller, the buyer, or both parties in a transaction. This helps eliminate confusion concerning the role of the agent(s) and reduces the possibility of inadvertent dual agency. Because confusion about real estate agency (and therefore the problem of inadvertent dual agency) persisted, many states, including California, passed agency disclosure laws. These laws generally require real estate agents to disclose to all parties, in writing, which party they're representing in a transaction. California's agency disclosure law was adopted in 1988. It applies to transactions involving residential property with up to four units. This law basically requires a real estate agent to give buyers and sellers two forms. One form provides general information about real estate agency relationships. The other form is for disclosing which party the agent is representing in the current transaction. Complying with the law's requirements significantly reduces the danger of inadvertent dual agency. Let's look at those requirements in more detail.

Written consent

-Seller's signature=written consent to dual agency -Buyer's signture=written consent to dual agency For a dual agency to be legal, the parties to the transaction must consent in writing. A dual agency relationship is legal in California only with the written consent of both parties. If a licensee acts as a dual agent without the written consent of the parties, she may be subject to disciplinary action. Agency Relationships clause in the listing agreement offered by the California Association of Realtors states: That if the buyer is found by another salesperson affiliated with the listing broker, then that broker will be acting as a dual agent. The seller consents in advance to such a dual agency. The clause also includes an acknowledgement by the seller that as a dual agent the broker won't be permitted to disclose either party's negotiating position to the other party. So when the seller signs this listing agreement, he is giving written consent, in advance, to the listing broker acting as a dual agent if the eventual sale turns out to be an in-house transaction. Naturally, the dual agency must also be disclosed to the buyer, and the buyer's consent must be obtained in writing. As you'll recall, the buyer agency agreement we looked at also has provisions regarding dual agency. In the main clause, the buyer consents to the broker acting as a dual agent in an in-house transaction. However, there's also a check box that allows the buyer to opt out of dual agency instead.

Liability and agency

-Vicarious liability -Imputed knowledget -In California: Principal is assumed to know what agent knows If an agent negligently or intentionallys fails to live up to his agency responsibilities and duties, he may find himself liable for the harm he causes. A principal may also be held liable for harm caused by her agent's actions. Let's look at two concepts related to liability in an agency relationship: -imputed -knowledge -vicarious liability

Buyer agency agreement

-Written buyer representation agreement is advisable When you're planning to act as a buyer's agent, you should enter into a written agency agreement with the buyer before you begin providing any services. This makes it clear that you owe agency duties to the buyer right from the start. Although technically you're not required to make your agency disclosure until the buyer is about to sign an offer, it's best to formally establish the agency relationship as soon as possible. A buyer agency agreement describes the rights and duties of both parties. It will set forth your duty to use your professional expertise to locate a property for the buyer and negotiate the terms of the sale. It will also establish the terms on which you'll be entitled to be compensated for your work. However, most buyer agency agreements include several additional provisions beyond those basic ones. We'll now take a closer look at a buyer agency agreement, specifically the Buyer Representation Agreement you see here, which is published by the California Association of Realtors. In Paragraph 1, the buyer authorizes the broker to represent the buyer in acquiring property. The broker will represent the buyer through the salesperson who signs the agreement on the broker's behalf. In the blanks, fill in the name of the buyer and the name of the brokerage firm, rather than your own name. You will also fill in the dates when the agreement will begin and end. If the buyer purchases a property, the agreement will automatically terminate, because the purpose of the agreement will have been fulfilled. Paragraph 2C states that if the property to be purchased is listed by the broker or by one of the broker's other agents, the broker will be working as a dual agent, representing both parties. In this paragraph, the buyer consents to this dual agency. However, if the buyer and broker want to avoid dual agency, the form allows them to elect single agency only, by checking the first box under paragraph 2C. This may mean that the broker's agents cannot show the buyer any properties that are listed by the broker. If the brokerage firm simply does not list properties, and only represents buyers, the second box should be checked instead. Paragraph 5 describes the authority of the buyer's agent. The buyer's agent may locate properties and show them to the buyer, present offers on the buyer's behalf, and assist with the financing process. She may also give the names of inspectors, order inspections or credit reports, and provide advice and guidance to the buyer. This paragraph also describes the buyer's agent's obligations. She must perform a reasonably competent and diligent visual inspection of the property. She must also disclose any material facts revealed by the inspection to the buyer, and assist the buyer in negotiations and the escrow process. In Paragraph 6, the buyer's agent limits the scope of her responsibility. First, the buyer's agent recommends that the buyer have professional inspections performed. The buyer agrees that those inspections are not part of the agent's duties (except for the required visual inspection). The buyer and broker also agree that the broker will not decide what price to pay for the property. The buyer acknowledges that the broker is not responsible for guaranteeing the condition of the property. Nor is the broker required to verify its square footage, identify hidden defects, or guarantee inspections or repairs. The broker does not have to provide advice that goes beyond the knowledge expected of a real estate agent, such as legal or tax advice. The broker also doesn't have to inspect for environmental or geological problems. In Paragraph 7, the buyer makes certain promises to the buyer's agent. The buyer promises to make a good faith effort to view suggested properties and negotiate to acquire a property. The buyer also agrees to provide personal and financial information within a certain number of days (the default is five days, unless another number is filled in). This shows that the buyer is serious about buying and will help the agent locate appropriate properties. In subparagraph 7C, the buyer agrees to reimburse the broker for legal expenses or damages that result from the buyer providing incorrect information or failing to disclose information. The buyer also agrees to pay for any inspections, reports, or meetings ordered by the agent for the buyer's benefit.

Agency Relationships / Section 1

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Duties Owed to All Parties

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Duty of Good Faith and Fair Dealing

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How an Agency is Created

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Other Legal Effects of Agency

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Real Estate Agency Duties

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Types of Agency Relationships

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Imputed knowledge rule

The liability of a principal and an agent is affected by the imputed knowledge rule. Under the imputed knowledge rule, both principal and agent are assumed to have notice of information that either of them ought to have communicated to the other, even if it was never actually communicated. Under California law, if either the principal or the agent has information that should be communicated to the other in the exercise of ordinary care and diligence, then the other is also considered to know that information—even if the information was never actually conveyed. In other words, the principal's knowledge is automatically imputed to the agent, and the agent's knowledge is automatically imputed to the principal. One effect of this rule is that a seller can be held liable for his broker's failure to disclose material facts to the buyer, even if the seller had no knowledge of those facts. Narrator Example: Let's look at an example. Will lists his house with Judy. Judy finds out that the zoning for Will's property is going to become more restrictive. But she doesn't pass this information on to Will. Judy shows the house to Bob, who likes it but wants to add on to the house. Judy tells him that's a great idea, and that he should have no problem getting permission from the local building department. Later, not knowing about the zoning change, Will says the same thing to Bob, who agrees to purchase the property. Bob buys the house, only to discover that after the zoning change he cannot make his planned addition to the house. Not only may Judy be liable to Bob for making a misrepresentation, but Will may also be liable to Bob because Judy's knowledge is imputed to him. While this may seem unfair to Will, Judy would most likely be liable to Will for any amount he had to pay to Bob.

Termination by operation of law

The most common way for an agency relationship to terminate by law is when its purpose is fulfilled. For instance, when a seller lists his property with a real estate agent, a successful sale of the listed property terminates the agency. Also, if either the principal or the agent dies or becomes legally incapacitated, the agency relationship is terminated by law. And if the subject matter of the agency (the property) is destroyed, the agency terminates.

Principal

The person who authorized the agent to represent him is called a principal. The principal is sometimes called the client.

Changing circumstances

We've now covered the different types of agency relationships that you may enter into in any given real estate transaction. Here's one final point, and it's a very important one: always keep in mind that your agency relationships can change suddenly, depending on the circumstances. Ex. You've been showing a buyer homes for a few days. You signed a buyer representation agreement with him, so you are acting as the buyer's agent. Today the buyer wants to look at a home that you listed yourself. In connection with this property, you are already the seller's agent, because of your listing agreement with the seller. If you show this listing to your buyer, you'll be acting as a dual agent. You must disclose this to the buyer immediately. The buyer has a choice at this point. If he doesn't mind that you'll be acting as a dual agent, he can ask you to go ahead and show him the home. Or he might decide to have another agent show him the home—an agent from another firm who will be representing his interests exclusively. If the buyer wants you to show him this home, of course you must have written consent to dual agency from both the buyer and the seller. Depending on the terms of your listing and buyer representation agreements, both parties may have given this consent in advance.

Previous relationship with the buyer

What if you've had a previous relationship with the buyer? You must: -Disclose agency status to buyer -Avoid acting as buyer's agent You might: -Recommend that buyer work with another agent If you have, it may be difficult for you to provide any services without generating some conflicts. You must be careful to disclose your agency status to the buyer. You should also remind him that you are obligated to disclose any confidential information you learn about him to the seller. And you need to remember where your loyalty lies and avoid acting as if you are representing the buyer instead of the seller. It may be wise to recommend that the buyer work with another real estate agent who can represent his best interests. If you ever work with someone that you used to have an agency relationship with, remember that any confidential information you learned during the agency relationship can't be revealed later, even though you are representing another principal.

Joint and several liability

When two or more parties have joint and several liability for a debt, each of them is legally responsible for paying the full amount. The creditor can demand the full amount (not just a share of it) from any of the debtors. Vicarious liability allows the person injured by the agent's actions to sue the principal as well as the agent. If the injured party prevails in the lawsuit, the agent and the principal will both be fully liable for the damages. This is called joint and several liability. It's important to the injured party, because her chances of collecting the judgment are greater if there are two defendants responsible for paying it. It's not surprising that a principal can be liable for harm caused by his agent if he authorized the agent's acts or approved them after the fact. For example, suppose a seller tells his real estate agent to withhold information about a latent defect and the agent complies. The seller as well as the agent can be held liable for any harm to the buyer caused by the agent's failure to disclose the latent defect. A principal can be liable to a third party even though the principal did not authorize or approve the agent's actions. Even if the principal was completely unaware of what the agent was doing, the principal may still be held liable for harm that the agent caused. If the principal did nothing wrong, however, then the principal can turn around and sue the agent. If the principal prevails in this lawsuit, the agent will have to reimburse the principal for the amount the principal paid to the injured party. The principal would still have to enforce the judgment against the agent, though. Ex. This time, suppose the seller's agent decided to withhold the information on her own. The buyer would still be able to sue both the seller and the agent, because the seller is vicariously liable for his agent's acts. However, the seller could then sue his agent for the amount of the damages he had to pay to the buyer.

Percentage fee

When you are paid a percentage fee, your commission is based on the percentage of the sales price of the home you find for the buyer. Note that this type of arrangement may lead to a conflict of interest, because the more the buyer pays for the property, the larger your commission.

Constructive fraud

When you make a misrepresentation without the intent to deceive, you are committing constructive fraud. Thus, you must be very careful about what you say. If you're not sure of your facts, it's best to remain silent. Don't guess and hope for the best.

Flat fee

You could be paid a flat fee--a specific amount that is payable if the buyer purchases any property you find for him.

Hourly fee

You may agree to be paid an hourly fee, which essentially turns you into a consultant. You get paid a set amount for each hour you spend working for the buyer.

Agency disclosure requirements

You must disclose your agency status to each party as soon as practicable. Listing agents and selling agents must give both the buyer and the seller an agency disclosure form. The parties show that they accept the agency relationships by signing an agency confirmation statement, which may be included in the purchase agreement form.

Loyalty and confidentiality

Your loyalty and confidentiality are enormous benefits to the buyer. You must put the buyer's interests ahead of anyone else's, and you must not disclose the buyer's confidential information. For many buyers, the most important confidential information is their bottom line—how much money they are willing to pay for the property. When the buyers know that you are representing them, they can freely discuss their financial situation, how badly they want the property, and what they are willing to pay for it. They know that you will keep that information confidential.

Compensation

A buyer's agent may be compensated with a seller-paid commission split or a buyer-paid fee. Accepting compensation from a seller does not create an agency relationship between a buyer's agent and the seller. Typically, a buyer's agent agrees to accept a commission split as her compensation if the buyer purchases a listed home. Most listing agreements provide that the commission the seller pays the listing broker will be shared with the selling broker, the cooperating agent from the MLS who found the buyer. The selling broker is ordinarily entitled to half the commission paid by the seller even if she's representing the buyer. Ex. When Seller lists his property, he agrees to pay the listing agent a commission of 7% of the sales price. A provision in the listing agreement says that any cooperating broker who finds a buyer is entitled to the selling agent's portion of the commission. You're representing a buyer who offers $100,000 for the property, and the seller accepts. The seller pays the listing agent a $7,000 commission. The listing agent pays you the selling agent's portion of the commission, $3,500. It doesn't matter that you were representing the buyer. $100,000 Sale price x 7% Commision rate =$7,000 Commission ÷ 2 =$3,500 Selling agent's portion When you get paid through a commission split, you are being paid by the seller. However, the source of your commission does not determine the identity of your principal. Thus, even though the seller pays the selling agent's commission, the selling agent still may be representing the buyer. Accepting payment from the seller DOESN'T turn a buyer's agent into a dual agent. You and the buyer could also decide on a buyer-paid fee. This could be in the form of an hourly fee, a percentage fee, or a flat fee. In order for one of these methods of compensation to apply, you must clearly explain it in your buyer representation agreement.

Cooperating agent

A cooperating agent is a member of the multiple listing service who tries to find a buyer for a listed property. Cooperating agents usually represent the buyers they work with, although it is up to each cooperating agent to decide whether he or she will represent the buyer or seller in a transaction.

Dual agency relationship

A dual agent represents both the seller and the buyer in the same transaction. The agent may not do anything that harms the interests of either party, and may not reveal either one's confidential information to the other. Alternatively, a transaction may Involve a dual agency, where both parties are represented by the same agent. As you know, dual agency occurs when one agent represents both the buyer and the seller in the same transaction. A dual agent owes agency duties to both parties. For example, suppose you're representing both the buyer and the seller in the same transaction. The seller tells you she's anxious to sell and will accept any reasonable offer. The buyer tells you she loves the house and is willing to pay the full listing price. You owe both the buyer and the seller the duty of confidentiality, so you must not divulge either party's statement to the other party. As you can see, it's difficult to represent both parties, because the interests of each party conflict with the other's. In fact, it is impossible to be loyal to both parties. Instead, the dual agent simply has the duty to refrain from acting to the detriment of either party.

Disclose latent defects

A licensee owes all parties the duty to disclose any latent defects. The licensee must perform a reasonably competent and diligent visual inspection of the property. Any problems noted during the inspection should be disclosed to prospective buyers as latent defects. Any problem that wouldn't be apparent to the buyer Narrator Example: A critical part of the duty of good faith and fair dealing is your obligation to disclose known latent defects. Remember, a latent defect is any problem with a property that wouldn't be readily apparent to buyers, and wouldn't be discovered through ordinary inspection. You may not treat latent defects as confidential information, even if your principal asks you to. Disclosure of latent defects is part of your duty to disclose all known material facts. Unless there is an exception created by state law, any information an agent or a principal knows that materially affects the value, desirability, or intended use of the property, and that would not necessarily be apparent to buyers, must be disclosed. You aren't required to explain the potential ramifications of any material fact, only the fact's existence. As we said earlier, California law requires real estate agents to visually inspect residential property. Agents must disclose to the parties any material information learned in the course of this inspection. An agent should disclose latent defects to a buyer even if the buyer doesn't specifically ask about them. Also, the seller must report any known defects on a Transfer Disclosure Statement to be given to prospective buyers. Completion of the statement is the seller's responsibility, but the agent must notify the seller of any observed problems.

Reasonable care and skill

A licensee owes all parties the duty to use reasonable care and skill in a transaction. As an agent, you owe your principal a duty of utmost care, but you also owe other parties a duty of reasonable care and skill. Again, you must use the same degree of care and skill that would be expected of any reasonably competent real estate agent. If you cause harm because of carelessness or incompetence, you may be held liable for that harm. Ex. Suppose you are the listing agent. You fail to provide the closing agent with an essential piece of information and the closing is delayed as a result. You are liable for the harm caused by your carelessness. If either the seller (your principal) or the buyer (a third party) suffers a financial loss because of the delay, you may be required to compensate them.

Fiduciary

A person who occupies a position of special trust in relation to another person. Real estate agents are fiduciaries of the buyers and sellers they represent, and must act in the best interests of their clients.

Latent defect

A problem with the property that is not readily apparent or discoverable by ordinary inspection.

Obedience and good faith

A real estate agent has a duty to make a good faith and continuous effort to sell the principal's property, or to find a property for the principal to purchase. An agent also owes the principal the duty of obedience and good faith. You must obey the principal's instructions, and must make a good faith effort to achieve the principal's goals. If you represent the seller, you must do your best to find a buyer for the property. If you represent the buyer, you must do your best to find a suitable property for the buyer to purchase. However, if you represent the seller, once the seller signs an offer for the property, you are under no obligation to find another buyer for the property. And if you represent the buyer, once the buyer is a party to an existing sales contract, you are not obligated to find another property for the buyer to purchase.

Inadvertent dual agency

A seller's agent who fails to disclose his status as the seller's agent and then provides real estate services to a prospective buyer runs the risk of creating an inadvertent dual agency. He will owe agency duties to both parties without having properly disclosed his dual agency status. An agency relationship can be created by implication even when the agent already has an existing agency relationship. For example, an agency by implication could accidentally develop between a listing agent and a buyer interested in the seller's home. This situation creates what is called an inadvertent dual agency. When an inadvertent dual agency develops, the parties may get confused about agency relationships. Also, a real estate agent can be subject to lawsuits and disciplinary action as a result of inadvertent dual agency.

Acting in accordance with disclosure

After disclosing your agency status, you must also act in accordance with that disclosure. That isn't always easy. Problems in this area often involve a listing agent who is also the selling agent. Let's look at an example. Suppose you're holding an open house for one of your listings. As the listing agent, you're representing the seller. You were acting like the buyers' agent, and they relied on your advice. By the time they made an offer, they believed that you were acting as their agent. You failed to act in accordance with your agency disclosure, and you were really acting as an undisclosed dual agent. Now either party could probably back out of the transaction and accuse you of breaching your agency duties.

Agency confirmation statement

After providing the disclosure form and explaining whether you're representing the seller, the buyer, or both in this transaction, you must have each party sign an agency confirmation statement. This indicates that they understand and accept the agency relationships you've disclosed. The agency confirmation statement must be signed at the same time the parties sign the purchase agreement, if not before. The confirmation statement can be included in the purchase agreement itself, as with this provision from the purchase agreement used by the California Association of Realtors. This provision leaves a space for the listing agent to check whether her firm represents the seller, or both buyer and seller. Below that, if the selling agent is not the same as the listing agent, he checks whether his firm represents the buyer, the seller, or both. Note that this provision asks the name of the BROKERAGE FIRM, not the salesperson's name. If the buyer and seller are represented by different salespersons from the same brokerage, you should indicate that the listing and selling agent are the same. If the purchase agreement form you're using doesn't contain this confirmation statement, you may use a separate form with the same options as the paragraph we just saw. Again, the listing agent and selling agent each check off which party they represent. There is space at the bottom for the signatures of each party and each licensee. The required agency disclosure form and confirmation statement are legally sufficient for disclosure of a dual agency. However, if you represent both parties to a transaction, you may want to use an additional disclosure form as well, to clarify the particular complexities of this arrangement. This additional form explains that an agent may represent many buyers or sellers at the same time, and also may represent both the seller and the buyer in a single transaction. It also explains that a dual agent won't betray the parties' negotiating positions to each other, but must disclose any material facts regarding the property to both parties. The form is signed by the licensee and by either the seller or the buyer; a separate form should be given to each party.

Seller agency relationship

Agency relationships involved in a single real estate transaction. As we've discussed, traditionally, real estate agents always represented the seller. The seller would enter into a listing agreement with a real estate agent. That listing agent would submit the listing to the MLS and would act as the seller's agent. The listing agent's broker, all the other agents working for that broker, and all the other members of the MLS would also represent the seller.

Fiduciary relationship

Agent-principal relationship.

Estoppel

An agency relationship can also be formed through a legal doctrine called estoppel. Estoppel applies in situations where it would be unfair to a third party if the principal denied the existence of an agency relationship. Here's an example. Suppose a real estate agent is showing a property to a buyer. He lets the buyer believe that he represents the seller, but he doesn't actually have an agency relationship with the seller. However, the seller is present at the showing and does nothing to discourage the buyer from believing that the real estate agent is representing him (the seller). Later, the buyer loses money because she took action relying on the belief that the agent was representing the seller. If the buyer sues the seller, the legal doctrine of estoppel would prevent the seller from claiming that there was no agency relationship.

Creating an agency relationship

An agency relationship requires the consent of both parties, and can be created by express agreement, ratification, or estoppel. An agency relationship imposes special duties on you, and it can also affect your principal's liability. So how is an agency relationship created? Let's take a look at how agency relationships are created under the common law of agency. An agency relationship can be created by: -Express agreement -Ratification -Estoppel -Implication

Loyalty

An agent also owes the duty of loyalty to his principal. He must not take any action that is detrimental to the principal's interests. Loyalty requires you to put your principal's interest above anyone else's, including your own. If you are the listing agent, you must do your best to obtain an offer that satisfies all your seller's needs, including price, downpayment, closing date, and so on. You must not simply encourage the seller to accept the highest offer because that means the biggest commission for you.

Implication

An agent can also create an agency relationship by implication, even without intending to do so. This can happen when an agent works closely with a buyer, leading the buyer to believe that the agent is representing her. Because the agent's conduct suggests that he represents the buyer, an agency relationship is created by implication. For the protection of the buyer, the agent cannot claim that no agency relationship was formed.

Disclosing conflicts of interest

An agent is required to disclose any potential conflicts of interest to her principal. If the agent has a relationship with a third party, that must be disclosed to the principal. You have the duty to disclose any conflicts of interest to your principal. If there is a relationship between you and a third party, a conflict of interest exists. For instance, suppose you are representing a buyer. You show him a variety of homes, and he finally finds one he's interested in. The home he likes is owned by your sister. You have a conflict of interest. You must tell the buyer about your relationship to the seller. In this situation, you are likely to feel divided loyalties as you try to put your buyer's interests above your sister's. The buyer has a right to know about this conflict before he makes an offer on the house. Knowing about your relationship with the seller may change the way he feels about your advice. Relationships that might create conflicts of interest include both personal and business relationships. If a house you're showing your buyer belongs to a corporation in which you own shares, a conflict of interest exists and must be disclosed.

Agent

An agent is someone who has been authorized by a person to represent that person in dealings with third parties. Narrator: When most people think of agents, they think of the agents that represent famous athletes or entertainers. They rarely think that they will work with an agent themselves. However, whenever they buy or sell a house, they will probably use an agent: a real estate agent.

Confidentiality

An agent may not disclose confidential information from or about the principal to third parties. Confidential information must be protected even after the agency relationship terminates. One of the most important aspects of the duty of loyalty is the requirement of confidentiality. You may not disclose confidential information you have learned about the principal to other parties. It may be difficult to determine whether or not information is confidential, but the basic rule is that confidential information is: -given to the agent by the principal in confidence, or acquired by the agent during -the course of or on account of the fiduciary relationship Confidential information cannot be given or used in a manner that is detrimental to the principal, unless it is already a matter of general knowledge. However, some information will not qualify as confidential information, because you are required by law to disclose it. In real estate transactions, sellers and their agents are required to make a number of disclosures to buyers. You must disclose this information, even if the seller wants you to keep it confidential. Information the seller is required to disclose cannot be kept confidential Ex. Suppose you represent the buyer. The buyer tells you privately that she recently received an inheritance from her grandmother. She can afford to pay the listing price for the property. However, she wants to make an offer that's $7,000 less than the listing price. Is this information confidential? Yes, this information is confidential. Here's why. You acquired the information during the course of your agency relationship. The principal would reasonably expect it to be kept confidential. The principal has not disclosed it to the seller herself. If disclosed, it would harm the principal's interests. And the principal is not legally obligated to disclose it to the seller. So what the buyer said about her inheritance meets all the criteria for confidentiality. Therefore the agent isn't permitted to disclose the information to the other party, or anyone else.

Disclosure of material facts

An agent must disclose any fact that would affect the principal's decision in the transaction. For instance, an agent representing a seller would need to disclose all offers, the property's true value, and a dual agency relationship. An agent has the duty to disclose material facts to the principal. In this context, a fact is considered material if it affects the property's value or desirability or is likely to affect the principal's judgment about a transaction. This could include zoning changes the city council is considering, for example, or a personal relationship between the agent and the other party. Information likely to affect principal's decision in the transaction. In many cases, a material fact will be a latent defect. A latent defect is a problem with the property that is not readily apparent or discoverable by ordinary inspection.

Real estate agency duties to principal

An agent owes fiduciary duties to her principal and also owes certain duties to other parties. Narrator: Under agency law, a real estate agent owes specific duties to her client, the principal. As we mentioned, the duties owed to the principal are often called fiduciary duties. When working on behalf of her client, a real estate agent also owes certain duties to other parties. We'll start by discussing the fiduciary duties an agent owes to the principal, then look at the duties an agent owes to other parties. There are five fiduciary duties: -utmost care; -obedience and good faith; -accounting; -loyalty; and -disclosure of material facts You owe these five fiduciary duties to your principal from the time the agency relationship begins through the closing of the transaction, or sometimes even after the transaction has terminated. You owe these agency duties regardless of whether your principal is the buyer or the seller.

Utmost care

An agent owes her principal the duty to use the utmost care in carrying out the purpose of the agency. The agent must act with the skill expected of a competent real estate licensee. Every agent has the duty to act with the utmost care when representing a principal. You must carry out the agency using the skills expected of a competent real estate agent. If there is a question about whether an agent acted properly, the agent's conduct will be compared with the actions expected of a competent real estate licensee, rather than the actions an ordinary person might take. An agent may be liable for any harm to the client that results from not acting with utmost care.

Accounting

An agent owes the duty to account for funds held in trust on behalf of the principal. In an agency relationship, the principal will often entrust some of her money (or other property) to her agent. The agent has a duty to account for all of these funds. This means that the agent must be able to report promptly on his handling of these funds any time the principal demands it. The duty of accounting continues even after the agency relationship has officially terminated. The agent must keep the principal's funds separate from his own money—in fact, the funds must be put into a special trust account. Money given to the agent on behalf of the principal does not belong to the agent, and usually must be transferred to the principal on demand.

Facts about the transaction

An agent representing the seller should disclose all of the information listed: -All offers to purchase -Property's true value -Relationship between agent & buyer -Dual agency

Authorized actions are binding

An agent's authorized actions are legally binding on the principal, as if the principal had performed those actions himself.

Objective advice

Another advantage of buyer agency is that the buyer gets the benefit of your objective advice. When you are representing the seller, you are working hard to get the buyer to make an offer. On the other hand, when you're working for the buyer, you can freely discuss the pros and cons of purchasing a particular house. Ex. Let's say you show Mr. and Mrs. Buyer several homes. The Buyers loved the third home you showed them and wanted to make an offer on it immediately. However, you helped them look into the property taxes, heating costs, and upkeep. With your help, the Buyers realized they couldn't afford to maintain such a costly house. You then showed them a more affordable house. They were interested in it, so you began researching the property. You learned that it might have some structural problems, so you advised them to get it inspected. The inspector found several serious problems and the Buyers quickly decided against purchasing it. The next home you showed them was great. It was affordable, in good shape, and in a lovely neighborhood. The Buyers were willing to pay the full listing price for it, but because you're so familiar with the housing market, you knew that they could probably get it for $5,000 less than the listing price. They made an offer based on your advice and the offer was accepted. If it weren't for all your advice, the Buyers might have ended up with a home that wasn't right for them.

Disclosing the property's true value

Another material fact that you must disclose to your seller is the true value of the property. If you know that the property is more valuable than the seller believes, you must let the seller know. That's true even if you don't learn the information that indicates a higher value until after the listing price has already been set. Sellers often rely on their agent's advice in setting the listing price. Because of this, agents must be careful to avoid misleading a seller about the property's true value. Unscrupulous agents could undervalue a property in order to arrange a bargain for a friend or collect a secret profit.

Unilateral offer of subagency

Any member of the multiple listing service who found a buyer for a listed property automatically represented the seller.

Real Estate Agency Law

Because you take on the role of agent in most real estate transactions, you have a lot more legal responsibilities than a car dealer or a computer salesperson. There are certain duties that you owe to your client and other duties that you owe to third parties. These duties are created through general agency law, a body of law that applies to agency relationships in nearly any context. This includes relationships between lawyer and client or trustee and beneficiary, as well as between real estate agent and home buyer or seller. Agency duties in California are created through general agency law

Retainer

Before agreeing to search for an unusual type of property, some buyer's agents insist on getting a portion of their fee paid up front. This is sometimes called a retainer. The retainer is usually nonrefundable, but it is credited against any other fees the buyer must pay the agent. $17,000 Buyer's agent's fee - 5,000 Retainer =12,000 Owed to buyer's agent

Agency disclosure

Before any party signs an offer, a licensee must disclose to that party which party the licensee is representing in the transaction. Finally, an agent owes all parties the duty of agency disclosure. You must disclose IN WRITING whether you represent the buyer, the seller, or both. That disclosure must be made BEFORE THE PARTY SIGNS AN OFFER in a real estate transaction you're handling.

Advantages of buyer agency

Being represented by a buyer's agent gives a buyer the advantages of loyalty and confidentiality, objective advice, help with negotiating, and access to more homes.

Good faith and fair dealing

Both the principal and his agent owe a duty of good faith and fair dealing to other parties. The licensee must not make false or misleading statements, even if it would benefit her client. An agent owes third parties a duty of good faith and fair dealing. You must not make inaccurate statements to third parties, conceal information that should be disclosed, or otherwise misrepresent the property or other aspects of the transaction. Note that your principal also has a duty of good faith and fair dealing in relation to other parties. Sellers may not mislead buyers, and buyers may not mislead sellers. Narrator Example: The duty of good faith and fair dealing has other implications as well. For example, suppose you know something about the property or the seller that you are not legally required to disclose. Maybe you know that 15 years ago, a horrible crime was committed in the house. You also know that you are not required to disclose this fact to buyers. But what if a buyer asks you whether any crimes were committed in the house? Even though you have no legal duty to volunteer this information, the duty of good faith and fair dealing requires you to answer the buyer's question truthfully. It may be appropriate to disclose problems to other parties even when you are not obligated to, because of the duty of good faith. This can apply if you know something that you believe will affect the buyer's decision about the property, but the buyer doesn't ask you about it. Even if you are not specifically required by law to disclose it, the duty of good faith may require you to disclose it anyway. For instance, suppose you know that the buyer has had problems with clinical depression. The buyer is looking at a house on a warm, sunny day and she is impressed with how light and cheerful the house is. This is very important to her, because dim rooms worsen her depression. However, you know that the house is often fogged in, because it's close to a lake. Because of the duty of good faith, you should tell the buyer about the fog.

Agency disclosure form

California's agency disclosure law requires you to disclose your agency status to the parties in a transaction as soon as practicable. As part of the disclosure process, you must give each party an agency disclosure form. If you are the listing agent, you must give the seller the disclosure form BEFORE the seller signs the listing agreement. If you are the selling agent, you must give the buyer the disclosure form BEFORE the buyer signs an offer. The selling agent also must give the seller the form BEFORE presenting the offer to the seller. Narrator: The contents of the form are determined by law. Aside from the signature lines, there's nothing to fill out, because this is a consumer information form that explains real estate agency in general terms. The agency disclosure form has three sections that describe the duties and obligations of a seller's agent, a buyer's agent, and a dual agent. When giving this form to a party, you should explain which type of agent you'll be in this transaction and what that means you can and cannot do. At the bottom, there's a place for your signature and the signature of the party receiving the form. Don't have the buyer and seller both sign the same form. Each one should sign a separate form.

Confidentiality: After agency ends

Confidential information learned in the course of an agency can't be disclosed at any point, not even after the agency relationship has ended. Suppose you represent the seller. He's decided to sell his house because he won a lot of money playing bingo and can suddenly afford a much more expensive house. You help him find a buyer, and he's happy with your services. The agency relationship ends. Sometime later, your former client asks to look at one of your listings. You can't disclose confidential information you learned in your earlier agency relationship with him to your current client.

Transfer Disclosure Statement

Disclosure statement required: Property sold "as is" Disclosure statement not required: -in court-ordered sale -in a new subdivision You don't need to inspect: -inaccessible areas -condominium common areas There's no way for the buyer to waive the right to have latent defects disclosed, even if the purchase agreement contains an "as is" clause or similar disclaimer. The seller and the seller's agent still have to reveal known latent defects, and the seller must provide a Transfer Disclosure Statement. California law requires a Transfer Disclosure Statement if the property being sold is a one- to four-unit residential property. The statement is not required for property being sold through court order (such as probate or foreclosure), or for a new home in a subdivision being offered for sale for the first time. Even if a Transfer Disclosure Statement is not required, real estate agents still have an obligation to visually inspect the property. As we mentioned earlier, the inspection does not need to include inaccessible areas of the property, or the common areas of a condominium. During a visual inspection, you may observe conditions that might or might not indicate a problem. If there is any doubt about whether something qualifies as a latent defect, it is always best to err on the side of disclosure. This applies even if you aren't sure how serious the problem is or whether there really is a problem. Narrator Example: You have listed a house for sale that is located on top of a hill. While inspecting the property, you notice that much of the hillside consists of fill dirt, which tends to be unstable. Further down the hill, you find some netting that may have been used to shore up a slide in the past. You also notice that the floor of the garage is uneven. Do you need to disclose these observations? You SHOULD disclose these observations. While they do not prove that the property is vulnerable to landslides or other geological problems, they should be considered red flags that indicate a possible hazard. As a result, you should treat these conditions as latent defects and disclose them. Then it will be up to prospective buyers to consult with a home inspector or geologist to assess the danger to the property.

Duties owed to third parties

Even though an agent owes his principal the duties of loyalty and obedience, the agent is never allowed to lie to or mislead other parties in order to achieve a more favorable result for his principal. That's because, in addition to the fiduciary duties owed to his principal, an agent also owes certain legal duties to third parties he deals with while representing the principal. These include the duty of reasonable care and skill and the duty of good faith and fair dealing.

Services to buyer

Even though you represent the seller, you also owe the duty of honesty and good faith to the buyer as well. Of course, you must not act as if you are representing the buyer. You must disclose all latent defects to the buyer and answer all the buyer's questions honestly. However, you must not give the buyer advice about how much to offer for the listed property, or put the buyer's interests above the seller's interests in any other way. You must withhold confidential information about the seller from the buyer, but you must tell the seller any information you learn about the buyer. Ex. You are the seller's agent. During an open house, you're showing the property to a buyer. As the buyer walks around the house, she says, 'I love this house. It's even a great price. But I'm going to start out with a low offer, just in case the seller's desperate.' If you were representing the buyer, this statement would be considered confidential information that you couldn't tell the seller. But because you represent the seller, you are obligated to pass this information on to him. As the seller's agent, you must not act as if you are representing the buyer. However, there are still many services you can provide to the buyer without violating your duties to the seller. In fact, these services help promote the sale of the property, so they are actually in the seller's best interests. These services include: -discussing the buyer's housing needs; -showing the property to the buyer; -disclosing all pertinent information about the property; -answering questions about the property and the neighborhood; -discussing financing alternatives; -furnishing copies of documents that might affect the property; -explaining the process of presenting the offer, negotiation, and closing the transaction; -referring the buyer to other professionals, if necessary; -filling out a purchase offer form and presenting the offer to the seller; -helping the buyer secure financing; and -facilitating the closing process.

Loyalty: Dual agency

If you are acting as a dual agent, the duty of loyalty is a little different. Because you cannot really be loyal to two parties who have conflicting interests, you must instead take no action that is harmful to either party's interest. This comes up most often when negotiating a sales price. A dual agent may not disclose: -that the seller will accept less than the listing price, unless the seller consents; or -that the buyer is willing to pay more than the current offer, unless the buyer consents.

Sanctions

If you fail to act in accordance with your agency disclosure, you may be subject to disciplinary action by the Bureau of Real Estate, and you may be penalized with one of the following sanctions: -suspension or revocation of your license, or -a fine of up to $10,000.

Fiduciary duties

In agency law, an agent is considered a fiduciary of the principal, and the duties the agent owes to the principal.

Cooperation and compensation' clause

In the late 1980s, many buyers began to want their own agents. But it was very difficult to represent a buyer when there was a unilateral offer of subagency clause in the listing agreement. As a result, this clause was replaced in most listing agreements with a 'cooperation and compensation' clause. Under the terms of the cooperation and compensation clause, other members of the MLS were authorized to act as cooperating agents. A cooperating agent is simply any member of the MLS who attempts to find a buyer. The clause did not create any kind of agency relationship between the seller and the cooperating agents. A cooperating agent could decide who she was going to represent in a particular transaction. This made it easier to represent the buyer, but it did not eliminate the problem of inadvertent dual agency. Even with the cooperation and compensation clause, there was still a lot of confusion surrounding agency representation in real estate transactions.

Actual fraud

Intentional misrepresentation constitutes actual fraud. But unintentional misrepresentation may also be considered fraud.

Termination by the parties

It may seem odd that either party can terminate the agency. However, you need to remember that the consent of both parties is required to create an agency relationship. Therefore, the principal has the ability to revoke the agent's authority at any time. Similarly, the agent can renounce the agency relationship, without the principal's consent. Of course, if the agency relationship was created by a contract between the parties, the party that terminates the agency may be liable for breaching the contract.

Historical background

It's easier to understand the problem of inadvertent dual agency if you know a little about the history of agency law. At one time, the standard arrangement was that all of the agents involved in a transaction were representing the seller. Studies showed that many buyers and sellers were confused about which party a real estate agent actually represented. Buyers were especially likely to be confused. It was easy for a buyer to think that the agent he was working so closely with (the selling agent) represented him instead of the seller. Because of this confusion, buyers often told selling agents confidential information. But in those days the selling agent almost always represented the seller, not the buyer. And as an agent of the seller, she was required by law to pass along to the seller any information disclosed by the buyer. Naturally, this surprised and upset the buyer. Narrator Example: Let's look at an example of how it used to work. Selling Agent showed the Buyers many homes over the course of several weeks. Selling Agent liked the Buyers and worked very hard to find them a house they wanted to buy. He gave them lots of advice about purchasing a home and asked numerous questions about their financial situation. But Selling Agent did not have an agency agreement with the Buyers, and this meant that he was actually working as the seller's agent. However, the Buyers mistakenly (although reasonably) believed that Selling Agent was their agent. When they finally located the perfect house, the Buyers were thrilled. They told Selling Agent that they were willing to pay full price. Nevertheless, they decided to start out with an offer that was $10,000 less than the listing price. -Dual agent = Agent representing both buyer & seller in same transaction. If Selling Agent did not disclose to the seller that the Buyers were willing to pay full price, he would have been breaching his duty of loyalty to the seller. Yet Selling Agent's actions had caused the Buyers to believe that he was representing them. This created an inadvertent agency with the Buyers. So if Selling Agent disclosed the Buyers' information to the seller, the Buyers could have claimed that he was breaching his duty of loyalty to them. And both parties could've claimed he was acting as an undisclosed dual agent. As you can see, if the buyers were led to believe that the selling agent was representing them, it could (and did) cause a lot of problems for everyone. Remember, during this time period (the mid-1980s and earlier), virtually all residential real estate agents represented the seller. This agency representation was based on a clause that was found in most listing agreements. The clause said that any member of the multiple listing service who found a buyer for a listed property automatically represented the seller. This clause was called a 'unilateral offer of subagency.'

Criminal activities

Keep in mind that information about criminal activity on a property is considered material if the activity has had a substantial adverse effect on the property, and therefore on its value. For example, illegal drug labs leave dangerous chemical residues behind. You could be required to disclose that kind of criminal activity. Suppose a house you are showing was the site of an illegal drug lab. Once the landlord discovered what the tenant was doing, he called the police, evicted the tenants, and had the premises decontaminated by an environmental specialist. The property was inspected again just before it was listed, and there was no residual health hazard from the lab. Would you still have to disclose the illegal drug lab activity? Probably not, because the activity is no longer affecting the physical condition of the property.

Access to more properties

Many buyer's agents will show their buyers only homes that are listed with the MLS. When a client decides to purchase a listed home, the buyer's agent is assured of receiving the selling agent's portion of the commission. Usually, this works out just fine. But every now and then you may run across a buyer who has special housing needs that can't be met through the usual channels. When this happens, you should be sure to enter into a written compensation agreement with the buyer. The agreement can be set up so that if you find the buyer a home through the MLS, your portion of the seller-paid commission will constitute your fee. But if you locate a home that isn't listed through the MLS, the buyer will compensate you directly. This type of agreement frees you to search in unconventional places. You can check on properties that are for sale by owner, properties in foreclosure, or properties that are in probate proceedings.

Buyer agency relationship

Most listing agreements allow cooperating agents to represent the buyer. It is best to establish a buyer agency relationship through a written buyer representation agreement. Agency relationships involved in a single real estate transaction. Because cooperating agents can choose to represent the buyer, many more buyers are now represented by their own agents in real estate transactions. There are substantial benefits to buyer agency. Of course, the primary benefit of buyer agency is the fact that a buyer's agent owes agency duties to the buyer—her principal—instead of to the seller.

Express agreement

Most real estate agency relationships are created by express agreement. A listing agreement creates an agency relationship between a seller and a broker, while a buyer representation agreement creates an agency relationship between a buyer and a broker. However, an agency relationship can be created by express agreement without a written contract. An oral agency agreement is valid. Even so, it's better for any agency relationship to be based on a written agreement, to help avoid misunderstandings. Also, unless a real estate agent and her principal put their agreement in writing, the agent can't sue the principal for a commission if the principal doesn't pay.

Principal bound by agent's actions

Narrator: As we've just discussed, when you become someone's agent, you owe certain legal duties to your principal, and also to third parties. But an agency relationship has other important legal consequences as well. For a third party, dealing with an agent may be the legal equivalent of dealing with the principal. Ex. If your principal authorizes you to make a contractual promise, the principal will be bound by your promise. Ex. Suppose the owner of an apartment complex hires you as his property manager. In your capacity as manager, you sign rental agreements as well as various maintenance and supply contracts. You also hire and fire staff for the complex. As long as these actions are within the scope of authority granted by your principal, the property owner, then they are binding on the principal.

Licensee as principal

Occasionally you may act as a principal in a real estate transaction. You may be either the buyer or the seller. When this happens, you should make additional disclosures to the other party. You should disclose that you're a licensed real estate agent in the state of California, and that you're purchasing or selling the property for your own benefit. If you're buying property and plan to resell it, inform the other party that you intend to make a profit on it. These disclosures are particularly important if you switch from agent to principal in a transaction--if you decide you'd like to purchase one of your own listings, for example. If you are a principal in a transaction, DON'T EVER try to represent the other party. Ask your broker or manager to review the purchase agreement form before you make or accept an offer. You should also recommend that the other party seek independent legal advice and an independent appraisal. And you should put all disclosures to the other party into writing. Your broker may have specific office policies about buying or selling your own property. They will be designed for your own protection, so you should become familiar with them and follow them.

Disclosing all offers

Present all written offers even if purchase agreement has been signed Narrator Example: The duty to disclose material facts includes the duty to present all written offers. This duty exists even if a purchase agreement has already been signed. For example, suppose the seller has just accepted an offer from Buyer #1, and then you receive another written offer for the same property from Buyer #2. You still have the duty to present Buyer #2's offer to the seller right away, even though the seller has already entered into a contract. The seller might want to consider Buyer #2's offer as a backup contract, in case the first sale falls through. Remember, it's the seller's job to accept or reject offers, not yours. Even if you get a written offer that you're sure the seller will reject, you must still present it to him in a timely manner.

In-house transactions

Remember that before the agency disclosure law took effect, dual agency relationships were often created inadvertently. The selling agent represented the seller, but often acted as if she represented the buyer. The buyer began relying on the agent's advice, and suddenly the agent found herself in the position of an inadvertent undisclosed dual agent. She risked the loss of her commission, disciplinary action, and a lawsuit. Thanks to the agency disclosure law, the danger of inadvertent dual agency has been reduced. Now dual agency is most likely to occur in in-house transactions. It's called an in-house transaction when the listing agent and the selling agent both work for the same broker. Ex. You've listed a house, which means you're representing the seller, and so is your broker. Another agent working for your broker finds a buyer for the listed property. The buyer is someone the other agent has been representing under a buyer agency agreement, which means that your broker is also the buyer's agent. Now that this buyer has agreed to purchase your listing, your broker is in the position of representing both the buyer and the seller in the same transaction. This means that your broker has become a dual agent in this transaction. And as a result, you (the listing agent) and the selling agent (who also works for your broker) are also dual agents. You now owe fiduciary duties to both the seller (your original client) and the buyer.

Duties owed to seller

Since the offer of subagency has been replaced in most listing agreements with the cooperation and compensation clause, many cooperating agents now choose to represent the buyer in a particular transaction, rather than acting as subagents of the seller. But some cooperating agents still represent the seller; and of course the listing agent still represents the seller. When you act as a seller's agent, you owe the seller the five fiduciary duties that an agent owes to his principal.

Dual agency

Some real estate licensees specialize in representing sellers or buyers. But most change their role from one transaction to the next, acting as a seller's agent in one case and as a buyer's agent in another. A licensee can represent both the seller and the buyer in the same transaction, which is called dual agency.

Ratification

Sometimes a person acts as an agent for another without having agency authority. The agent may not have any authority to act for the principal, or the agent may exceed the authority originally granted. In these situations, an agency relationship may still be created by ratification: the principal approves the agent's acts after the fact, even though the agent didn't have authority when performing those acts. The principal can create an agency relationship by ratification if he explicitly approves the unauthorized acts. Ratification can also occur if the principal simply accepts the benefits of the unauthorized acts.