Chapter 5, Unit 1: Agency Law

Clayton Antitrust Act

-The Clayton Antitrust Act of 1914 made both substantive and procedural modifications to federal antitrust law. The Clayton Act was designed to cover restraints on interstate trade or commerce that are not covered under the Sherman Act. This included preventing individuals from serving as directors at competing companies. -Under the Clayton Act, private individuals are permitted to sue antitrust violators. If the suits are successful, the individuals can recover three times the damages incurred plus court costs and attorneys' fees.

The Sherman Antitrust Act of 1890

-The Sherman Antitrust Act of 1890 is the principal federal statute that covers competition and is one of the most important pieces of antitrust legislation. -Antitrust laws prohibit: 1. Price Fixing - Collusion between or among members of a particular trade to maintain prices at a set level. 2. Group Boycotts - Agreements between or among members of a particular trade that would prevent other members from fair participation in the trade's activities. 3. Market Allocation - Agreements between or among members of a trade to avoid doing business in specific market areas. 4. Tie-in Arrangements - Arrangements that requires a buyer to purchase additional or unrelated products or services when making a product purchase. -One major problem existed with creation of the Sherman Act. From the start, the terms "restraint of trade", "combination" and "monopolize" were not properly defined, turning the act into a vague and weak legislation. In addition, there was no independent commission established at the time to investigate possible antitrust cases, making the act difficult to enforce.

General Agent

In a general agency, the principal delegates to the agent ongoing tasks and duties within a particular business or enterprise. Such delegation may include the authority to enter into contracts.

Universal Agent

In a universal agency relationship, the principal empowers the agent to perform any and all actions that may be legally delegated to an agency representative. The instrument of authorization is the power of attorney.

Principal

The person who hires the agent and delegates to the agent the responsibility of representing the principal's interests.

Agent

The person who is authorized to represent and act on the behalf of another person.

Misrepresentation

-A common complaint that buyers have against listing brokers has to do with misrepresentation by the broker. As we have said earlier, agents have a duty to disclose to customers any material facts that concern the value and desirability of a property. Often buyers complain that the agent concealed a material fact about the property that the agent knew or should have known. -If an agent's misrepresentation of the facts leads a buyer to sign a purchase contract, the contract could be voided and the agent could lose the commission. -In addition, an agent who fails to live up to prevailing standards may be held liable for negligence, fraud, or violation of state real estate license laws and regulations. Agents should be particularly careful about misrepresenting and offering inappropriate expert advice when working with customers.

Special Agent

-A special agent is also known as a limited or specific agent. Under a special agency agreement, the principal delegates authority to conduct a specific activity, after which the agency relationship terminates. In most cases, the special agent may not bind the principal to a contract. -In most instances, real estate brokerage is based on a special agency. The principal hires a licensed broker to procure a ready, willing, and able buyer or seller. When the objective is achieved, the relationship terminates, although certain fiduciary duties survive the relationship. -An agency coupled with an interest is an agency relationship in which the agent has an interest in the property that is being sold. This type of agency cannot be revoked by the principal, nor is it terminated if the principal dies. For example, a broker agrees to finance a condominium development if the developer agrees to give the broker the exclusive right to sell the finished condo units. Since the broker has a special interest in the transactions, the developer would not be able to revoke the listing agreement after the broker has provided the financing.

Implied Agency

-A written agreement is not necessary to create an agency relationship - the relationship can be implied. -This relationship is formed when the actions of the parties indicate that they have mutually consented to an agency. In fact, the persons involved may not have consciously planned to form an agency relationship. However, their actions may unintentionally, inadvertently or accidentally form the relationship. -For example, Buyer Mary calls salesperson Jim to show her a home. She assumes then that he is her agent. In reality, Jim is the listing agent for the home he showed. -An implied agency could be created if Jim does not correct Mary's assumption that he is now her agent. And in this example, an unintended dual agency relationship could be formed - causing conflict for all parties. -Note: Whether intended or accidental, the creation of implied agency obligates the agent to fiduciary duties and professional standards of care. If these are not fulfilled, the agent may be held liable.

Accountability

-Accountability is an important duty owed to clients. An agent must be able to account for all monies, documents and other property he or she receives from the principal. -Brokers must also give copies of documents to everyone who is affected by them and retain these documents for at least three years.

Duties to Customers

-Agents do have certain obligations to customers, even though they do not represent them. In general, they owe a third party: 1. Honesty and fair dealing 2. Reasonable care and skill 3. Proper disclosure -An agent has a duty to deal fairly and honestly with a customer. Thus, an agent may not deceive, defraud, or otherwise take advantage of a customer. Reasonable care and skill means that an agent will be held to the standards of knowledge, expertise, and ethics that are commonly maintained by other agents in the area. -Proper disclosure primarily concerns disclosure of agency, property condition, and environmental hazards. -Note: Regarding Megan's Law, many state courts have said that brokers are not obligated to search state records to determine where convicted sex offenders live. Brokers who represent buyers, however, are advised to let clients know that the sex offender registry is available online for public inspection. -An agent who fails to live up to prevailing standards may be held liable for negligence, fraud, or violation of state real estate license laws and regulations. -Agents should be particularly careful about misrepresenting and offering inappropriate expert advice when working with customers.

Fiduciary Duties

-An agency relationship imposes fiduciary duties on both the client and the agent, but mostly in the agent. These duties are both moral and ethical, but also legal - they are the law of agency. The duties that the agent owes his or her principal are: 1. Care 2. Obedience 3. Accountability 4. Loyalty 5. Disclosure or Notice -These are often referred to by the acronym COALD or COALN.

Creating Agency

-An agency relationship is created when a person (buyer or seller, landlord or tenant) delegates to another person, the agent, the right to act on his or her behalf in business transactions with third parties (customers). -Several principles govern that relationship. 1. Both parties must consent to the relationship. 2. Both parties must agree to form the relationship. 3. The relationship is fiduciary - meaning the agent owes certain duties to the principal. -An agency relationship can be created by either an oral or a written agreement between the principal and the agent. It can also be implied from either words or actions. Although agency can be created orally, it would be in the best interests of all concerned to have the relationship clearly defined with a written agreement. -Providing a service to a customer does not in itself create an agency relationship. Agency is created by mutual consent of the principal and the agent. -Three types of agency relationships exist. 1. Express agency 2. Implied agency 3. Agency ratification and estoppel (Ostensible agency)

Scope of Authority

-An agent is authorized to perform only those activities that the principal permits. Real estate agents are usually special or limited agents. Their scope of authority does not usually extend beyond the terms that are outlined in the listing agreement. -A broker is authorized by the client to find a ready, willing and able buyer, but this authorization usually does not include authority to perform such actions as: 1. Signing contracts for the seller 2. Initialing changes to an offer 3. Permitting early occupancy -The authority granted to the broker is outlined in the listing agreement, which typically authorizes the broker to perform these actions: 1. Place a sign on the property 2. Advertise the property 3. Show the property 4. Cooperate with other brokers 5. Use a multiple listing service (MLS) 6. Accept earnest money deposits -Brokers are also often given authority to perform some tasks that are not explicitly spelled out in the agreement, but which are customary in order to accomplish the goal of the agreement - namely to find a buyer for the property. An example of this would be using a salesperson to hold an open house.

Disclosure

-An agent is bound to inform the client of all facts that might affect the client's interests in the transaction. This includes both the facts that the agent knowsand those that the agent should have known. -An agent is responsible for discovering anything that might be deemed important to his client in making an informed decision, whether or not they are favorable to the client's position. An agent could be held liable for damages if he or she failed to disclose such information. -An example of a "should have known" would be a crack in a basement wall that the agent failed to notice. If the basement wall ultimately springs a leak, the agent could be held liable for failing to disclose a material fact if the court believes that the typical agent would have noticed the crack. -An agent for a seller has a duty to disclose such things as: 1. Purchase offers 2. Who the prospective purchasers are and if the agent has a relationship with them in any way 3. Ability of the purchaser to complete the transaction 4. Ability of the purchaser to offer a higher price 5. Purchaser's intention to resell the property for a profit -An agent for the buyer has a duty to disclose such things as: 1. Deficiencies in the property 2. Any contract provision of financing terms that doesn't suit the buyer's interests 3. How long the property has been listed 4. Why the seller is selling -There is no obligation to obtain or disclose information related to a customer's race, creed, color, religion, sex or national origin: anti-discrimination laws hold such information to be immaterial to the transaction. -Some states have enacted laws requiring a seller to make a written disclosure about property condition to a prospective buyer. This seller disclosure may or may not relieve the agent of some liabilities for disclosure.

More Misrepresentation

-An intentional misrepresentation occurs on the part of a listing broker when he or she conceals a property defect from a buyer, misrepresents the existence of a defect to the buyer, or omits certain critical facts about the property even if the buyer did not ask. -It is also an intentional misrepresentation if a broker or agent engages in self-dealing. This occurs when a broker lists the property, decides to buy it for him or herself and then collects the agreed-upon commission.

Passive Fraud

-An intentional nondisclosure of a material fact. This can happen if a person intentionally fails to disclose a fact or actively attempts to hide the fact. -In the example from above, when the buyer asks the seller about termites, the seller says there are none or that he doesn't know for sure when in fact he does know they are present.

Antitrust Laws

-Antitrust laws are state and federal laws designed to maintain and preserve business competition. These laws are based on the belief that free enterprise and healthy competition are good for individual consumers as well as the economy. -In general, a violation of an antitrust law occurs when all three of these parameters apply to a business activity: 1. There is a monopoly, a contract, a conspiracy or a combination of such. 2. The existence of the monopoly or conspiracy creates a restraint of trade - which is a negative impact on an individual's or a company's ability to do business. 3. The restraint of trade unreasonably restricts competition and functions against the public interest. -For example, if a group of brokers belonging to a certain Board of REALTORS® get together and decide they will charge a 20% commission on the purchase of all commercial properties, those brokers are violating antitrust laws. -By the 19th century, the United States began to experience what came to be known as big businesses. In the age of industrialization, the railroad became the first real form of mass transportation. This meant that within one day's time people and businesses could move themselves and products over distances that previously were never manageable. Eventually, transportation competition began to rise and railroads turned to consolidation to help deal with decreasing profits. -Consolidation continued as businesses faced increasing competition. With the intention of controlling prices, competing businesses coordinated prices in order to minimize competition and increase profit. In essence, it was a form of monopolization, as companies consolidated their operations in the market.

Agency and Brokerage

-Brokerage is the term used to refer to the business of bringing buyers and sellers together to assist them in the negotiations for the sale of a property. Brokerage firms can be owned by one licensed broker or can be owned by a partnership or corporation that has more than one licensed person. Most times, brokerage firms employ other licensees. Sellers enter into listing agreements with the brokerage firm; therefore the brokerage firm owns the listing agreements. -When a client enters into a listing agreement with a brokerage firm, the broker is the agent of the client. The licensees that are affiliated with the brokerage firm are the agents of the broker and the subagents of the broker's clients. -Because the broker is the agent for the clients (or principals), the broker is responsible for the actions of his or her affiliated licensees. Because of this, it's important to understand the term vicarious liability . According to license law in many states, a broker is vicariously liable for a salesperson's wrongful actions only if "the broker had actual knowledge of such violation or retains the benefits, profits or proceeds of a transaction wrongfully negotiated by his salesperson or employee after notice of the salesperson's or employee's misconduct." However, if a licensee's actions are negligent and cause damage and/or injury, the broker could be held liable and be required to pay damages. -Because the licensees are the subagents, they are required to act in accordance with all the terms of the listing agreements and follow all the rules of the brokerage firm. -Many real estate transactions are completed through the efforts of other brokers who assist the broker who has the listings. These cooperating brokers typically find and bring the buyers who make the offer on the listing broker's properties. A cooperating broker has no agreement in place with the seller, so that broker must rely on the listing broker for a commission. -The question exists as to whether agency and brokerage are synonymous. -Real estate law requires licensees to clearly define to buyers and sellers exactly whom they are representing in the transaction. In some cases, a buyer or seller may request that they not be officially represented. In such a case, the licensee becomes more of a facilitator in the transaction, bringing together directly those persons (buyers and sellers) who will negotiate the contract. -Although this type of non-agency relationship is permitted, it is often very difficult to carry out. It's much too easy for a licensee to cross over into the role of an agent, in which case he or she must then disclose an agency relationship to all the parties. -Because non-agency status is so rare, it's probably safe to say that brokerage and agency are typically synonymous.

Constructive Notice

-Constructive notice is the legal presumption that information is available and can be obtained through due diligence (care and activity). This is also referred to as legal notice. -A deed that is properly recorded in the public record serves as constructive notice to the world of a person's rights or interests. Taking physical possession of a property is also an example of giving constructive notice. -For example, because the information is readily available, a prospective buyer could investigate if the deed for the property he or she is attempting to purchase was properly recorded.

Legal Implications of Agency

-State licensing laws impose statutory requirements on licensees acting as agents, which obligate them to perform in ways that protect their client's interests in real estate transactions. -In other words, entering into an agency agreement is a legal action, which could make an agent legally liable if he or she violates the duties owed to the client. -An agent has a responsibility to inform the client of any facts or information that could affect the client's position in a transaction.

History of Antitrust

-It wasn't until the case of John D. Rockefeller's Standard Oil in 1882 that big business became an issue that the public needed to confront. Standard Oil merged with its competition by forming the Standard Oil Trust. This was basically the establishment of what is known now as a board of trustees. -These trustees became legally responsible for all assets and properties of Standard Oil and the merged companies. The trustees were also responsible for appointing all directors and managers of the company, thus solidifying their control over Standard Oil and, fundamentally, the oil industry. -Prices across the entire industry were essentially being directed by one entity. Any other company not a part of Standard Oil's trust was unable to compete against the giant company and was therefore unable to enter the industry. Standard Oil Trust could basically run out any rival business by setting a lower price that would be impossible for a single-entity company to operate on. -By this time, the public was seeing limited competition and restrictive price controls in two industries: the railway industry and the oil industry. These two entities prompted public discontent, which in turn led to the desire and intent to control big business and monopolistic practices.

Principal's Duties

-Just as an agent owes duties and responsibilities to his or her principal, so does the principal owe duties to the agent. -The principal has the following obligations to an agent in an agency relationship. 1. Availability - In a special agency, the power and decision-making authority of the agent are limited. Therefore, the principal must be available for consultation, direction, and decision-making. Otherwise the agent cannot complete the job. 2. Information - The principal must provide the agent with a sufficient amount of information to complete the desired activity. This may include property data, financial data, and the client's timing requirements. 3. Compensation - If an agreement includes a provision for compensating the agent and the agent performs in accordance with the agreement, the client is obligated to compensate the agent.

Puffing

-Licensees are seen as experts in the field of real estate by their clients. Clients tend to believe that everything an agent tells them is a fact. But agents do give their opinions on property. -An agent can offer an opinion as long as he or she does so with no intention to be deceptive. The agent should clearly identify to the client what is fact and what is just an opinion. -Exaggerated or superlative comments about a property's benefits are called puffing. For example, the statement "This home has the most efficient floor plan of any of the homes in this neighborhood" is puffing. -The test for whether a statement is puffing or misrepresentation is based on whether a reasonable person would have relied on the statement to make a purchasing decision. -The statement "This apartment has a fantastic view," is an example of puffing because this is an opinion the buyer could assess for himself or herself. On the other hand, the statement "This apartment has a view of the lake," when in fact it faces the street, would be considered a misrepresentation.

Levels of Service

-Licensees deal with both clients (principals) and customers. But there is a difference between the level of service an agent provides to a client and the level of service he or she provides to a customer. -An agent has fiduciary obligations to the principal. An agency relationship is typically formed through a written agreement between the parties. This agreement can be a listing agreement between a licensee and a seller or landlord. Or it can be a buyer or tenant agreement between a licensee and a person who wants to buy or lease. -The agent can offer advice and counsel to his or her principal to guide the principal in future actions. An agent can give this advice based on the expectation that the agent has professional and technical real estate expertise that will be of value to the principal. Note however, that a licensee cannot give legal advice unless he or she has a separate license to do that. -On the other hand, the licensee can impart factual knowledge to a customer, but the licensee does not provide advice and counsel to the customer. -In essence, the agent works for the principal and with the customer.

Antitrust Lawsuits

-New legal precedents are set every time antitrust suits are heard in court. In 1980, the courts decided that the fixing of real estate commissions have interstate effects in that they can affect the demand for interstate financing and title insurance. -Courts have also found that violations of antitrust laws occur when brokers: 1. Charge net commissions 2. Share commissions with brokers who have not provided any services in the sale or listing of a property 3. Share commission with unlicensed companies -As a result of these kinds of cases, many real estate boards do not directly or indirectly influence commission rates or get involved in commission arrangements between cooperating brokers. In addition, some states require licensees to inform clients that commission rates are negotiable.

Obedience

-Obedience requires that the agent act in good faith and obey the principal's directions as outlined in the contract, as long as they are legal. -For example, an agent may follow the principal's instructions stating that the home may not be shown on Sundays. However, an agent may not follow any directives that violate Fair Housing laws or that instruct the agent to conceal a defect in the property. -If a directive is illegal and the agent cannot get the client to remove it from the contract, the agent should withdraw from the relationship.

Actual Notice

-On the other hand, actual notice means that not only is the information available, but someone has been given the information and actually knows it. -If the prospective buyer (or his or her agent) has searched the public record and inspected the property, that buyer has actual notice, also called direct knowledge. -A third type of legal notice is known as imputed notice. This means that what an agent knows is binding on the principal because of the agency relationship they have entered into. -For example, if the buyer's agent receives notice that the seller has accepted the buyer's offer, the buyer could not then withdraw the offer, even though the buyer does not yet have actual notice of the contract acceptance.

Definitions

-Real estate brokers and salespersons are commonly referred to as agents. However, it's important to know that strictly speaking licensees are truly agents only under very specific circumstances. -The term agent is actually a term that refers to a very precise legal relationship. In the real estate world, that relationship is between a licensee and one of the following: 1. A seller 2. A buyer 3. A landlord 4. A tenant -Agency law is a body of law that governs these relationships in very specific ways.

Compensation

-The compensation or commission the broker will receive is usually spelled out in one of the following: 1. Listing agreement 2. Buyer's agency agreement 3. Management agreement -This commission can be computed in any of these ways: 1. Percentage of the transaction amount 2. Flat fee 3. Fee for service 4. Hourly rate -A broker will earn compensation when that broker has actually completed the work he or she was hired to perform. -Commission is usually paid after the transaction has been consummated. However, the commission is earned when the following activities have occurred. 1. The broker has produced a ready, willing and able buyer. 2. The buyer has signed an offer to purchase. 3. The seller has accepted the offer. 4. Both buyer and seller have received signed copies of the agreement. -The commission is paid to the broker who was the procuring cause of the sale, in other words - the broker who took action to start or to cause a chain of events that resulted in the sale. It's important to understand that merely being involved in a transaction, such as showing a home, can be different from being the procuring cause. -When a seller hires a broker, that broker produces a ready, willing and able buyer and the seller accepts an offer from that buyer, the seller has now become responsible for paying compensation to that broker. -However, if for some reason the transaction does not complete, the seller may still be responsible for paying a commission to the broker. This can happen if the seller: 1. Changes his or her mind and refuses to sell 2. Has a spouse who won't sign the deed 3. Has a title with uncorrected defects 4. Commits fraud with regard to the transaction 5. Cannot deliver possession 6. Insists on terms that were not in the listing agreement 7. Mutually agrees with the buyer to cancel the sale -What this means is that the broker is still entitled to receive the commission if the transaction does not complete due to the seller's default. -In the same vein, if a buyer hires a broker to find a property and agrees to pay a commission to the broker, the broker will be entitled to receive that commission if he or she performs according to the terms of the contract, even if the buyer 1. Decides against making the purchase 2. Makes a direct purchase of a "for sale by owner" property 3. Chooses to purchase a property through another broker

Loyalty

-The duty of loyalty requires the agent to place the client's interests above those of all others, including his or her own. An agent must negotiate agreements without considering the amount of compensation he or she will receive. In addition, a licensee is required to disclose any personal interest he or she has in a property. -Confidentiality about the principal's affairs is an important aspect of loyalty. -If the agent represents the seller, he or she may not disclose without the seller's express permission such things as: 1. Client's willingness to accept an offer lower than asking price 2. Client's anxiousness to sell -However, the agent must disclose material facts about the property. -If the agent represents the buyer, he or she may not disclose without the buyer's express permission such things as: 1. Client's willingness to pay more than asking price 2. Client's need or desire to move quickly -Note: The duty of confidentiality extends beyond the termination of the relationship. No personal information gained during the term of the agreement can ever be disclosed to another party. Confidential information must always remain confidential. -An agent must exercise care in fulfilling this duty. If confidentiality conflicts with the agent's legal requirements to disclose material facts, the agent must inform the client of this obligation and make the required disclosures. If the agent and the client cannot resolve the conflict, the agent must withdraw from the relationship.

More About Agency

-The essence of the agency relationship is trust, confidence, and mutual good faith. The principal trusts the agent to exercise the utmost skill and care in fulfilling the authorized activity, and to promote the principal's best interests. -The agent undertakes to strive in good faith to achieve the desired objective, and to fulfill the fiduciary duties. -An agency relationship is based on authorization and mutual consent. It is not based on compensation. -Compensation can be negotiated - as in the case of a listing agreement. However, an agency relationship can exist that defines no compensation - as in the case of a buyer's agency agreement where the agent gets compensation from the seller, not his buyer client. -The agency relationship is not determined by who pays the commission. In the past, in most residential transactions, the seller was responsible for paying the commission to the broker. But since the advent of the buyer agency agreement, other arrangements are becoming more common. The seller and buyer could agree to share the responsibility of paying his or her own agent.

Care

-The law expects an agent to do his or her job with a reasonable degree of care, skill and diligence. Since the principal hires an agent because of his or her expertise in the field, the principal expects the agent to use that expertise on the principal's behalf. -If the agent represents the seller, exercising care and skill includes: 1. Helping the seller set a realistic asking price 2. Discovering and disclosing facts that affect the seller 3. Presenting contracts properly 4. Marketing the property effectively 5. Helping the seller evaluate purchase offers -If the agent represents the buyer, exercising care and skill includes: 1. Helping the buyer locate appropriate housing 2. Evaluating property values and property conditions 3. Determining financing alternatives 4. Presenting offers and counteroffers with the buyer's interests in mind -If an agent fails to exert reasonable efforts to represent his client's interest, the agent could be found guilty of negligence in court. An agent is liable to the principal for any loss that results from carelessness or negligence.

Penalties

-The penalties for antitrust violations can be in the millions of dollars. -The Sherman Act was not enforced for many years. Then Congress began to seek out violators and up the fines and prison terms. In June of 2004, President George W. Bush signed into law the Criminal Antitrust Penalty Enhancement and Reform Act, increasing the maximum criminal penalty for individuals to 10 years' imprisonment and a potential of millions of dollars.

Determining Representation

-The practice of real estate has changed dramatically over the years, especially in the residential market. States continue to enact new laws that govern the relationships between brokers and clients, forcing brokers to reevaluate how they deal with their clients and the public. -Some questions brokers are dealing with include: 1. Will our firm represent only sellers? 2. Will our firm represent only buyers? 3. How will our firm interact with other brokers? -As a result, the brokerage business continues to change as brokers try to enhance the services they offer to their clients. -But even as states enact new laws, the underlying principles of agency relationships remain the same. -An agent owes a number of fiduciary duties to the person he or she represents. Clients use the services of agents to do those things that they do not want to or cannot do themselves. Clients see agents as real estate specialists and they rely on their agents for professional advice. -Agency relationships can be established in several ways. It is critical that brokers understand their agency alternatives and their agency responsibilities. They must communicate to their licensees the company policies that describe whom the real estate agents represent. Brokers need to train their licensees in the dialogue that will allow them to make timely disclosures without losing potential clients or customers.

Fiduciary

-The relationship of trust or confidence between the agent and the principal. -Agency is the fiduciary relationship between the agent and the principal.

Agency Ratification and Estoppel

-This agency relationship arises by the actions of the parties involved, rather than by a written agreement. -For example, Charles is the owner of a vacant property he is selling himself. He knows that broker Hal is showing the property to prospective buyers without the authority to do so. If Charles doesn't stop Hal from doing the showings, the law considers that the prospective buyers have the right to believe that Hal is Charles' agent. -This agency is also known as ostensible agency because on the surface an agency relationship appears to exist. In the example above, once this type of agency is created, Charles is prevented by estoppel* from denying its existence. -*Estoppel is defined as a legal doctrine by which a person is prevented from asserting rights or facts that are inconsistent with a previous position or representation made by act, conduct or silence. -Taking the scenario above a bit further, ratification is the adoption or confirmation of an act already performed on behalf of a person without prior authorization. So in our example above, if one of broker Hal's buyers indicates an interest in purchasing the property, Broker Hal will contact Charles. If Charles agrees to sell, he "ratifies" an agreement to pay a commission.

Negligent Misrepresentation

-This is an unintentional misstatement or omission. Negligence is defined as the failure to use ordinary or reasonable care in a situation. So negligent misrepresentation is usually the result of an agent giving information carelessly or failing to verify a fact before passing it to the buyer. -An agent does not have to intentionally misrepresent a fact. The agent would be liable if he or she knows or should have known that the fact he or she is sharing is false. -For example, agent Sam's buyer Paul has told Sam that he wants a home with a relatively new heating system. Sam shows Paul a home he likes and then tells Paul that the heating system is new (when in fact it's 20 years old). Paul buys the home and three months later the heating system fails. Agent Sam is liable because he either knew or should have known the age of the heating system.

Express Agency

-This most common way of creating an agency relationship is a written agreement in which the parties involved formally express the intention to form an agency relationship and they outline the terms and conditions of that agreement. -A listing agreement is the common form of express written agency agreement between a seller and a broker, authorizing the broker to find a ready, willing and able buyer for the property. -A buyer's agency agreement is the common form of express written agency agreement between a buyer and a broker, authorizing the broker to find a suitable property to purchase or rent.

Federal Trade Commission

The Federal Trade Commission (FTC) was formed through an act of Congress in 1914. The FTC has the power to judge whether particular trade practices are unfair. The FTC can enforce compliance with the Sherman Act and some sections of the Clayton Act.

Consequences

An agent can be liable for violating a duty to a client or customer. Since clients and customers rely on the expertise and actions of agents performing within the scope of their authority, regulatory agencies and courts aggressively enforce agency laws, standards, and regulations. Violation of a duty owed to a client or customer could result in: 1. Rescission of the listing agreement (causing a loss of a potential commission) 2. Forfeiture of any compensation that may have already been earned 3. Disciplinary action by the state license law authorities, including license suspension or revocation 4. Suit for damages in court

Intentional Misrepresentation

An agent may intentionally defraud a buyer by misrepresenting or concealing facts. While it is acceptable to promote the features of a property to a buyer or the virtues of a buyer to a seller, it is a fine line that divides promotion from misrepresentation. Silent misrepresentation, which is intentionally failing to reveal a material fact, is just as fraudulent as a false statement.

Active Fraud

An intentional misrepresentation of a material fact for the purpose of gaining an unfair or dishonest advantage over another person. This results in an injury to the person who is relying on the information. For example, a buyer asks a question about termites and the seller produces a falsified termite report.

Client

The principal.

Customer

The third party with whom the agent deals when working on behalf of the principal.