Real Estate Exam 2

Disclosed Dual Agency

A licensee may act as a disclosed dual agent only with the prior informed and written consent of all parties. The informed consent must be evidenced by a dual agency agreement, promulgated by the commission, and must be signed by the buyer before writing an offer and by the seller before signing the sales contract. The agreement must specify the transaction in which a licensee is serving as dual agent and must state that:

Mutual Agreement -

Both parties can agree to terminate the relationship. If both parties agree to part ways, the reason for the termination does not matter.

Joint liability

Joint - means the Agent and the Sub-agent are fully liable for all their obligations.

Seller Agency (Listing Agreements)

MLS agreements require all listings to be placed in the MLS. The MLS also serves as a compensation agreement between cooperating members. When operating outside your MLS, it will require a compensation agreement with the Listing Agent if compensation is expected.

Revocation

Principal terminate the Agents authority to act on behalf of the principal.

Destruction of Subject Matter

agency terminates if the property burns down.

Loss of Capacity

agency will terminate upon the Agent or the Principal losing their authority to act in the transaction.

Termination of Agency a. By Operation of Law Lapse of Time:

all agency agreements must have an expiration date. Agreements may not contain an automatic extension clause of any kind.

Performance

all parties have fulfilled all obligations.

Confidentiality

is paramount is an agency relationship. This is one of six fiduciary duties agents owe their principal. Confidentiality continues beyond the termination of agency relationships.

Several liability

means the Agent and the Sub-agent are only liable for their proportionate share of the obligations.

Bankruptcy

of either party.

Special Agent:

the Special Agent is typically the Broker-in-charge/Company for a principal (buyer or seller). The principal will hire the Special Agent and indicated the level of authority in which to act in the Listing or Buyers Representation Agreement.

General Agent:

one authorized to represent a client on behalf of another agent. Associated licensees are typically General Agents to the Agent (Broker-in-charge). General Agents are employed by the Agent either as an employee or independent contractor. The General Agent will be given specific authority to act for the Agent in the hiring agreement.

Two Fiduciary duties never expire after agency is terminated.

1) Accounting 2) Confidentiality

Fiduciary duties that are not limited:

1) Confidentiality 2) Accounting 3) Reasonable Care

Fiduciary duties that are limited:

1) Obedience 2) Loyalty 3) Disclosure

f. Confidentiality

As stated earlier, confidentiality is paramount in agency relationships. Confidentiality lasts beyond the termination of the agency relationship which means it can never be disclosed to anyone other than the Agent (BIC). Sub-agents can discuss confidential information with the BIC since the BIC is the legal party representing the principal anyway. Other than the BIC, sub-agents cannot discuss confidential information with anyone else. Agents may not obtain or ask a customer for confidential information. There are three permissible times that agents may disclose confidential information. They are: When the principal grants permission to disclose information. When it is required by law to disclose information. When disclosure is required to defend oneself against accusations of wrongful conduct before a legal standard hearings board of any form.

Dual Agency Issues

Dual agency exists when the agent represents the buyer and the seller in the same transaction. Dual agency is legal in South Carolina with informed and written consent from both buyer and seller. Both buyer and seller must understand that the agent is representing both parties and cannot do or say anything to either party that would hurt or put the other party at a disadvantage in the transaction. Although the agent will still owe each principal all six fiduciary duties, three of them will be limited under dual agency.

e. Indemnity

Indemnity is when a party secures another against loss or damage due to the happening of a specific event or to compensate for incurred damage.

Representation Agreements - licensees and company

Most sub-agents are typically hired as Independent Contractors, although they may also be hired as employees. Representation agreements between the company and the licensee establish express authority detailing what a licensee may do in representing the company. The agreement must also establish if the licensee will be an Independent Contractor or an employee. The biggest difference between the two is that Independent Contractors are responsible for paying their own payroll taxes, not the company.

Net Listing

Net listings are agreements between the seller and agent stating that the seller will get an agreed upon amount at closing and the agent will get the difference in that amount and what it actually sold for as commission. This type of agreement does not contain all the essential elements of a valid contract because it lacks the agreement of a specific sales price. This form of listing agreement is not legal in South Carolina

Agent's duties to principal (Fiduciary Duties) a. Obedience

Obedience to your principal is a requirement that agents must adhere to. Agents must obey any and all instructions from their principle so long as the instructions are legal and moral. There may very well be times when your principal states a method or opinion on how to approach a situation that you disagree with. As their agent, you should express your ideas on the situation, but in the end, if the principal does not agree, you must act in the manner specified by the principal. If their opinion is not legal, agents have a responsibility to educate the principal with the legal issues and suggest other viable alternatives.

d. Good Conduct

Principals must conduct themselves in a manner in which is professional and under the leadership of the agent. Many agents believe it to be a good idea to ask the seller(s) to leave the property when it is being shown to buyers. Buyers will state their honest opinion concerning the appearance and upkeep of a property with little to no concern about the seller hearing the comments. Negative comments, such as the color of paint on a wall, may offend the seller with unkind words being exchanged.

(4) Disclosure

Property Defects must be disclosed to all potential buyers whether they are a customer or client. All property defects must be disclosed by the agent in which the agent knows about. Agency Relationships must be explained at first practical opportunity or substantive contact. Customers must be provided with the state prescribed Agency Disclosure Brochure and agency relationships explained. There are four permissible forms of agency relationships in South Carolina. They are: 1) Buyer Agency, 2) Seller Agency, 3) Disclosed Dual Agency, and 4) Sub-Agency.

Company and sub-agency

Real estate agents must work with and under the supervision of a Broker-in-charge for a minimum amount of time as required by state statute. In South Carolina, the minimum time is three years as a Salesperson. The broker-in-charge (BIC) will always be the Agent in every real estate transaction whether representing the buyer or seller or both (Principal). The Agent (BIC) therefore employs sub-agents to assist in representing the Principal. Sub-agents do not represent principals. There is a misconception by the public (buyers and sellers) that the sub-agent is actually their Agent and providing the representation. In reality, the Agent (BIC) is the only one that can legally represent the Principal. The sub-agent is merely representing the Agent and assisting in the representation of the Principal.

The Exclusive Agency Listing

Sellers agreeing to an exclusive agency listing may only hire one agent to represent them in the sell of their home. The seller will be liable for the agent's commission only if a licensed agent sells the home. The seller retains the right to sell the home themselves and not owe the agent a commission.

Opportunity

The Principal owes the agent ample opportunity to perform as agreed in the agency agreement. If a seller lists his home with the agent, the seller must provide ample opportunity to show the home to potential buyers. Some sellers tend to put unreasonable demands on the agent such as only showing the property between 6:00pm and 7:00pm on Thursday evenings. Such a small window would not provide adequate opportunity for the agent to sell the home.

b)Full Disclosure

The laws of agency require agents to disclose all information learned and/or obtained to their principal. For this reason, the laws of agency require agents to discuss agency relationships at first substantial contact. It's not right for a buyer to disclose important and confidential information to an agent without knowing that the agent must disclose all information provided to the seller. Anything an agent knows or learns concerning a real estate transaction, at anytime during the transaction, must be disclosed to the principal.

Exclusive Buyer Agreements

There are two forms of Exclusive Buyer Agreements allowing the buyer to hire only one agent to find a home to purchase. The two forms of Exclusive Buyer Agreements are as follows

Obligations of Agents to Third Parties (Customers)

Third parties to agents would be anyone involved in a real estate transaction in which the agent does not have an agency agreement to represent. Those involved in the transaction without representation are called customers.

e. Reasonable Care, Knowledge and Diligence

This duty is probably one that is most assumed by agent and principal. Most reasonable people would assume that the agent representing the principal would most certainly use reasonable care, knowledge and diligence during the process. There may be tenancies by the sub-agent to get a transaction closed without regards to details. In other words, if the agent is more concerned about closing rather than making sure it is the right property for the principal and ensuring each of the parties have fulfilled their obligations to the principal, then the agent is not protecting the interests of the principal. Handling of offers, counteroffers, and multiple offers would fall under this area. All offers must be delivered promptly and in a manner that the principal understands the offer.

The Exclusive Right to Sell Listing

This form of agreement will require the seller to pay the agent a commission regardless of who sells the property. As with any form of exclusive listing, the seller may only hire one agent to sell the home.

Partially Disclosed Principal:

When an Agent represents a Principal by disclosing to third parties of an agency relationship, but does not disclose the identity of the Principal. Although it is practiced in residential real estate, it is practiced very seldom.

Undisclosed Principal

When an agent represents a Principal without disclosing who the Principal is or even that they are representing a Principal is an Undisclosed Principal. As far as the third party is concerned, the Agent is acting for and by himself without a Principal. Should the Principal default or be in breach of contract, the liability will remain with the Agent since the Agent is presenting himself as the Principal. This type of Principal is more common in commercial real estate.

Disclosed Principal:

When the Agent is representing a Principal and the identity is known to third parties, the principal is considered to be a Disclosed Principal. Most residential real estate transactions include the Disclosed Principal.

Permissible Forms of representation in South Carolina

a. Seller Agency b. Buyer Agency c. Dual Agency - Designated Agency d. Transaction Brokerage

A Fiduciary Relationship

is a relationship in which one party places special trust, confidence, and reliance in and is influenced by another who has a fiduciary duty to act for the benefit of the party called also confidential relationship. A fiduciary relationship may be created by express agreement of the parties, or it may be imposed by law where established by the conduct of the parties. Typical fiduciary relationships exist between agents and principals, attorneys and clients, executors or administrators and legatees or heirs, trustees and beneficiaries, corporate directors or officers and stockholders, receivers or trustees in bankruptcy and creditors, guardians and wards, and confidential advisors and those advised.

Universal Agent:

one authorized to conduct business on behalf of a client with very broad authority. Most real estate agents will not be a Universal Agent. An example of this broad authority might be for one working for Wal-Mart. Wal-Mart will instruct the Agent to find the next great location for a new Wal-Mart Super Store and when it is found, go ahead and buy it and Wal-Mart will build a new store.

Loss of Title - - -

owner loses legal rights to the property.

2) A licensee offering services to a customer shall:

(a) timely present all offers to and from the parties involving the sale, lease, and exchange of property; (b) timely account for all money and property received by the broker on behalf of a party in a real estate transaction; (c) provide a meaningful explanation of agency relationships in real estate transactions; (d) provide an explanation of the scope of services to be provided by the licensee; and (e) be fair and honest and provide accurate information in all dealings.

Open Listing

This form of agency agreement allows for the seller to hire one or as many brokers as they choose to represent them as their agent. The seller is only obligated to pay a commission to the agent that actually sells the house. The seller also retains the right to sell the home with no representation and owe no commission to any agent.

(1) Although the agent does not owe any fiduciary duties to a customer, the agent may offer the following services to a customer including, but not limited to:

a) identify and show property for sale, lease, or exchange; (b) provide real estate statistics and information on property; (c) provide pre-printed real estate form contracts, leases, and related exhibits and addenda; (d) act as a scribe in the preparation of real estate form contracts, leases, and related exhibits and addenda; (e) locate a list of architects, engineers, surveyors, inspectors, lenders, insurance agents, attorneys, and other professionals; and (f) identify schools, shopping facilities, places of worship, and other similar facilities on behalf of any of the parties in a real estate transaction.

General concepts about the Agency Relationship

Agency relationships are fiduciary, or legal in nature, in which a principal enters into a consensual written relationship (agreement) with an agent for legal representation. There are six legal obligations (fiduciary duties) the agent owes the principal. Although all six will be discussed in great detail in this chapter, it is critical to understand that TRUST and CONFIDENCE are paramount in an agency relationship. Confidentiality, when established by an agency relationship, will never end. Agency relationships will be terminated for different reasons and different times, but the confidential information given during that relationship can never be disclosed unless otherwise stipulated by South Carolina Statute.

Agency Relationships and Responsibilities Characteristics Contractual and/or consensual

Agency relationships can be formed by mutual and consensual agreements either orally or in writing. However, South Carolina Statue requires all agency agreements to be in writing when practicing real estate in South Carolina. Written agency agreements are the only means of legally providing professional real estate services to a buyer or seller in South Carolina. The written agreement establishes the agency relationship between the Agent and the Principal (Client). Agents providing professional real estate services to buyers or sellers (customers) without a written agreement are practicing implied agency. Implied agency is illegal in South Carolina. It is also important to understand that agency should not be confused with compensation. An agent can provide a "gratuitous" service (no compensation) but must still establish a written agency relationship if professional services are to be provided. It is also permissible to receive compensation from customers (with no agency relationship) so long as professional representation does not occur. Written agency agreements are also considered to be personal in nature due to the fact that agents acting within the authority granted by the client will be treated the same as if the client had acted themselves.

3) Honesty and Fair Dealing

Agents are expected and required to be honest and fair with clients and customers alike.3) Honesty and Fair Dealing Agents are expected and required to be honest and fair with clients and customers alike.

c)Loyalty

Agents are required to provide advice, opinions, and due diligence to all principals which means putting the interest of the principal first and ahead of all other interests (to include the interests of the agent).

Renunciation/Abandonment -

Agents authority to terminate the agreement.

Principal's obligations to the Agent a. Compensation

Agents may expect to be compensated by their clients in the amount agreed to and at such time as agreed to in the agency agreement. Agents may be compensated without an agency agreement; however, the likely hood of compensation is greatly reduced. Agents cannot receive compensation by more than one party without the full knowledge and written consent of all parties.

b. Reimbursement

Agents may expect to be reimbursed for some expenses in the event the client does not fulfill their obligations in the agreement resulting in the agent losing money. For example, if a seller lists his home for sale with an agent, the agent would be expected to market and advertise the property which costs money. If the agent spends money in the marketing and advertising, and the seller later decides to pull the property off the market, the principal would owe the agent in the amount spent for advertising. However, only those items agreed to in the agency agreement will be reimbursed to the agent.

Limitations of customer service

Agents may not provide any professional services to a customer. Professional and/or Fiduciary services may only be provided to clients. Agents must exercise caution when working and providing services to customers. If the agent does or states anything the customer could interpret as an act of representation, and believes the agent is now working for and representing the customer, the agent has created an implied agency. Implied agency is not legal in South Carolina.

Open Buyer Representation Agreement

Requirements of this agreement allow for the buyer to hire as many Agent's as they desire to find the home they would like to purchase. The agent finding the home the buyer purchases will be due a commission from the sale of the property. No other agent will be due a commission from the buyer. The buyer also reserves the right to find the property without the assistance of an agent and owe no commission to any agent.

Creation of Agency

State statute requires that all agency agreements be established in writing. This relationship will be evidenced by the listing agreement when the company is representing a seller and a buyer representation agreement with the company is representing the buyer.

Vicarious Liability

secondary liability that arises under the common law doctrine of agency. Anything a sub-agent knows or should know, it is presumed the agent also has knowledge (whether they actually do or not).

d)Accounting

The most obvious of this duty is to account for all monies received by the principal. Accounting for money will be discussed in more legal detail in Chapter ten. In addition to accounting for money, agents must account for paperwork. Each principal must receive copies of all contracts and agreements as soon as they can be signed by the appropriate parties. Problems in this area are a result of a seller signing a listing agreement and having to take the agreement back to the office to get it signed by the Agent (BIC). Many times, after the agent signs the listing agreement, the sub-agents do not take the signed copy back to the seller. Instead, they just keep all copies in their own file.

f. Good Faith

The principal is expected to be fair and act in good faith when working with an agent. Agents have a right to believe their client will act in good faith and to the terms agreed to in the agency agreement.

The Exclusive listing

When the seller and agent sign an exclusive listing, the seller may only hire one agent to represent them in the sale of their home. There are two different forms of exclusive listings with different compensation requirements.