Ch. 14 Agency relationships

Intentional misrepresentation

agent should not intentionally (or unintentionally) defraud a buyer by misrepresenting or concealing facts - a fine line that divides promotion from misrepresentation Silent misrepresentation, intentionally failing to reveal a material fact, is just as fraudulent as a false statement

Client disclosure

agent who plans to represent a buyer or tenant must disclose import of proposed agency relationship in writing before representation agreement is executed

"Reasonable care and skill"

agent will be held to the standards of knowledge, expertise, and ethics that are commonly maintained by other agents in area - Proper disclosure primarily concerns disclosure of agency, property condition, and environmental hazards - 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

transaction broker, or facilitator

allows a broker to represent no one in a transaction and is not an agent of either buyer or seller, facilitator does not advocate the interests of either party.

Client disclosure

an agent who intends to represent a seller or owner must disclose the import of the proposed agency relationship in writing before the listing agreement is executed; agent must inform seller or landlord in writing that agent will be representing client's interests as a fiduciary, and will not be representing interests of any potential buyer

Duties not imposed on the transaction broker

broker is held to standards for dealing with customers as opposed to clients, these include honesty, fair dealing, and reasonable care - transaction broker is under no obligation to inspect the property for benefit of a party or verify accuracy of statements made by a party

Customer disclosure

buyer agent must disclose agency relationship to seller or seller's agent on first contact. Substantive contact is assumed.

principal

client

Agents obligations to third party customers

honesty and fair dealing reasonable care and skill proper disclosure - agent has a duty to deal fairly and honestly with a customer, an agent may not deceive, defraud, or otherwise take advantage of a customer

Duties of the transaction broker, or facilitator

- account for all money and property received or handled - exercise reasonable skill and care - provide honesty and fair dealing - present all offers in a timely fashion - assist the parties in closing the transaction - keep the parties fully informed - advise the parties to obtain expert advice or counsel - disclose to both parties in residential sale transactions all material facts affecting property's value - protect confidences of both parties in matters that would materially disadvantage one party over other

broker's salespersons

- all listing broker's salespeople who have agreed to work for broker to find a customer are subagents of listing broker and owe fiduciary duties to broker and, by extension, to broker's client

Outside "co-brokers" and agents.

- common practice for brokers and salespersons to "cooperate" with a listing broker in finding buyers or tenants - listing broker, in return, agrees to share the commission with a cooperating broker - It is cooperating brokers who form multiple listing services to facilitate the process of bringing together buyers and sellers

Duties of a disclosed dual agent

- first duty is to disclose agency relationship to both principal parties or to withdraw from one side of duality, after disclosing, agent must obtain written consent of both parties to continue, then agent owes all fiduciary duties to both parties except full disclosure, undivided loyalty, and exclusive representation of one principal's interests

prospect

3rd party customerr/ buyer

Oral disclosure

If an agent becomes involved in a substantive contact over the phone or in a such way that it is not feasible to make written disclosure, agent must make disclosure orally and follow up with a written disclosure at first face-to-face meeting.

Exclusions

Possible instances that might be excluded from the requirement of disclosure are: - attendance at, or supervision of, an open house, providing the agent does not engage in any of the contacts described above - preliminary "small talk" concerning price ranges, locations, and architectural styles responding to questions of fact regarding advertised properties

Agent's duties to the client

Skill, care, and diligence - agent is expected to do job with diligence and reasonable competence.

Special, or limited, agency

Under agency agreement, the principal delegates authority to conduct a specific activity, after which the agency relationship terminates. - In most cases, special agent may not bind principal to a contract. - In most instances, real estate brokerage is based on a special agency, principal hires a licensed broker to procure a ready, willing, and able buyer or seller. When objective is achieved, relationship terminates, although certain fiduciary duties survive relationship.

Sub-agency

a broker or licensed salesperson works as agent of a broker who is agent of a client - Subagents might include a cooperating licensed broker, that broker's licensed salespeople, and listing broker's licensed salespeople, all of whom agree to work for the listing broker on behalf of the client - subagent is an agent of broker who is agent of client; subagent owes same duties to agent as agent owes to client

Competence

a level of real estate marketing skills and knowledge comparable to those of other practitioners in the area - notion of care extends to observing the limited scope of authority granted to agent - since a client relies on a broker's representations, a broker must exercise care not to offer advice outside of his or her field of expertise. Violations of this standard may expose agent to liability for unlicensed practice of a profession such as law, engineering, or accounting.

Implied agency

agency relationship can arise by implication, intentionally or unintentionally. Implication means that the parties act as if there were an agreement - example, if an agent promises a buyer to do everything possible to find a property at lowest possible price, and buyer accepts proposition, there may be an implied agency relationship even though there is no specific agreement

involuntary termination

agency relationship may terminate contrary to wishes of parties by reason of: death or incapacity of either party abandonment by agent condemnation or destruction of property renunciation breach bankruptcy revocation of the agent's license Involuntary termination may create legal and financial liability for a party who defaults or cancels. - example, a client may renounce an agreement but then be held liable for agent's expenses or commission agency relationship imposes fiduciary duties on client and agent, but particularly on agent, agent must also observe certain standards of conduct in dealing with customers and other outside parties

Negligent misrepresentation

agent can be held liable for failure to disclose facts agent was not aware of if it can be demonstrated that agent should have known such facts - example, if it is a common standard that agents inspect property, an agent can be held liable for failing to disclose a leaky roof that was not inspected

Full disclosure

agent has duty to inform client of all material facts, reports, and rumors that might affect client's interests in property transaction - In recent years, disclosure standard has been raised to require an agent to disclose items that a practicing agent should know, whether agent actually had the knowledge or not, and regardless of whether disclosure furthers or impedes progress of transaction - 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 transaction - Some states have recently enacted laws requiring a seller to make a written disclosure about property condition to a prospective buyer; seller disclosure may or may not relieve agent of some liabilities for disclosure

Breach of duty

agent is liable for a breach of duty to client or customer - regulatory agencies and courts aggressively enforce agency laws, standards, and regulations. A breach of duty may result in: - rescission of the listing agreement (causing a loss of a potential commission) - forfeiture of any compensation that may have already been earned - disciplinary action by state license law authorities, including license suspension or revocation suit for damages in court

Obedience

agent must comply with client's directions and instructions, provided they are legal. - An agent who cannot obey a legal directive, for whatever reason, must withdraw from relationship. If the directive is illegal, agent must also immediately withdraw.

Confidentiality

agent must hold in confidence any personal or business information received from client during term of employment. - agent may not disclose any information that would harm client's interests or bargaining position, or anything else client wishes to keep secret. - confidentiality standard is one of the duties that extends beyond termination of the listing: at no time in future may agent disclose confidential information - if confidentiality conflicts with agent's legal requirements to disclose material facts, agent must inform client of this obligation and make required disclosures. If such a conflict cannot be resolved, agent must withdraw from relationship

Facilitator disclosures

agent must provide written notice to all parties or their agents on first becoming a transaction broker.

Accounting

agent must safeguard and account for all monies, documents, and other property received from a client or customer. - State license laws regulate broker's accounting obligations and escrow practices

Single agency

agent represents one party in a transaction, client may be either seller or buyer.

Misrepresentation of expertise

agent should not act or speak outside agent's area of expertise. - A customer may rely on anything an agent says, and agent will be held accountable - example: an agent represents that a property will appreciate, buyer interprets this as expert investment advice and buys property. If property does not appreciate, buyer may hold the agent liable

Loyalty

duty requires agent to place interests of client above those of all others, particularly the agent's own, particularly relevant whenever an agent discusses transaction terms with a prospect

Implied and undisclosed dual agency

if a broker or agent acts in any way that leads a customer to believe that agent is representing the customer, a dual agency has potentially been created - example, a buyer makes confidential disclosures to agent who works for seller and exhorts agent to keep them confidential, buyer wants house but knows he is going to lose his job in a month and probably will not qualify for financing. If agent agrees to keep the information confidential, agent has not only created an agency relationship with buyer, but is now in a dual agency situation

Compensation

if agreement includes a provision for compensating agent and agent performs in accordance with agreement, client is obligated to compensate agent.

agency relationship

law of agency- defines and regulates the legal roles of this relationship; parties to the relationship are: principal (a client) agent (a broker) customer ( a third party).

Customer disclosure

listing agent must disclose in writing to a buyer or tenant that agent represents owner in transaction - disclosure must occur before or at first "substantive contact" with customer prospect - disclosure must also be confirmed in any subsequent sale or lease contract.

Written or oral listing agreement

most common way of creating an agency relationship is by listing agreement, which may be oral or written. - agreement sets forth various authorizations and duties, as well as requirements for compensation - agreement establishes an agency for a specified transaction and has a stated expiration.

Availability

power and decision-making authority of agent are limited, principal must be available for consultation, direction, and decision-making in order to complete job

General agency

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

Universal agency

principal empowers agent to perform any and all actions that may be legally delegated to an agency representative - The instrument of authorization is power of attorney.

Information

principal must provide agent with a sufficient amount of information to complete desired activity; may include: property data financial data client's timing requirements.

Buyer agency

property buyer or tenant is the client and property owner is the customer.

Objectives of disclosure

removes confusion about who an agent is working for the requirement to disclose aims to: - notify clients and customers about whom the agent represents - inform clients and customers of fiduciary duties and standards of care agent owes them - inform prospective clients and customers that they have a choice in how they are represented - obtain acknowledgement and acceptance of the disclosure from the principal parties Recent legislation requires an agent to disclose to all parties the fact that the agent represents one party and does not represent the other, an agent must inform client and customer that agent represents the client and does not represent the customer (unless it is a dual agency). An agent must disclose agency relationships whenever there is a transfer of a real estate interest, whether the interest is a fee, partial fee, exchange, leasehold, sublease, assignment, air right or subsurface right

Dual agency

representing both principal parties to a transaction. agent represents both buyer and seller or tenant and owner. - example, if a salesperson completes a buyer agency agreement with a party on behalf of a broker, and party then becomes interested in a property listed by broker, broker becomes a dual agent. - Dual agency may arise from voluntary, specific agreement between the principal parties or from parties' actions, much like implied single agency.

Seller agency

seller or landlord is agent's client - A buyer or tenant is the customer.

The primary forms of agency relationship between brokers and principals

single agency, dual agency, and subagency - fourth kind of relationship, referred to as transaction brokerage, no agency relationship exists in transaction

No subagency

some states have recently moved in direction of disallowing subagency, where subagency is replaced by buyer agency and seller agency only - an agent either represents the buyer directly, or the seller directly - agent who shows a buyer a property either represents the buyer, or is in fact the listing agent

Substantive contact

subject to variations in state regulation, "substantive contact" between listing agent and customer occurs whenever the agent is: - showing the prospect a property - eliciting confidential information from a prospect regarding needs, motivation, or financial qualification - executing a contractual offer to sell or lease

essence of agency relationship

trust, confidence, and mutual good faith

there are three types of agency relationships-

universal, general, and special.