Chapter 3 - Real Estate Agency

False Promise

- agency violation - false statement about what the promiser is going to do in the future

Misrepresentation

- agency violation - includes not only was what said, but also the failure of a broker/salesperson to disclose material fact about the property - false statement of facts

Definite Termination Date

- agency violation - law requires a specified termination date for all exclusive contracts between real estate agent and principla relating to transaction for which a real estate license is required

Conversion

- agency violation - misappropriating and using the client's money - this is a crime that carries jail sentence

Trust fund-handling problems

- agency violation - trust funds: money or other items of value that an agent receives on behalf of a principal in the course of a real estate transaction that requries a license - most common agency violation is failure to handle trust funds in an appropriate manner

Commingling

- agency violation - when broker mixed the funds of principal with broker's own money

Secret Profit

- agency violation - when broker, who already has a higher offer from another buyer, makes a low offer. - the differnece is the secret profit - sometimes referred to as divided agency - guilty of this if real estate agent derives any profit other than the agreed commission w/o disclosing the nature of the profits to the principal

Trust Funds

- brokers required to keep official record of all deposits that pass through real estate business - many brokers open trust fund account to receive money on behalf of clients and customers for safe keeping - broker cannot put personal funds in trust fun account, except up to $200 to cover bank service fees - if broker receives deposit from prospective buyer who does not instruct deposit be held uncahsed, broker must, w/in 3 days, do one of the following: 1. give deposit to principal (seller) 2. put deposit in escrow 3. put deposit in trust fund account - trust fund records must be kept in chronological sequence or by method deemed an acceptable accounting practice

Real Estate Salesperson and Broker Relationship

- independent contractor relationship recognized for income tax-reporting purposes - real estate commissioner regards this relationship as employer employee relationship because broker needs to supervise activiites of salesperson

Recovery Fund

- state of CA has program wereby the public can recover money when there are certain uncollectable court judgements obtain aginst a real estate licensee on the basis of fraud, misrepresentation, deceit, or conversion of trus funds in a trasaction - financed using a portion of ral estate licensing fees - max amt of moeny a person can receive from fund is limited to $50K per individual claim, up to $250K for multiple claims against any one real estate licensee

2 categories of Agency

1. General Agency - general agent is one who has broad powers to act on behalf of principal 2. Special Agency - special agent has limited or well-defined powers, frequently confined to a single transaction (most real estate agency are special)

Creation of Real Estate Agencies

1. by Agreement (most common) - in writing - principal (usually seller) appoints a real estate agent in writing - the authorization to sell (the listing agreement) is the document most frequently used to appoint agent; specifies the powers delegated to agent, the terms and conditions of proposed sale, and commission earned and brokerage amt. 2. by Ratification - approve unauthorized act - no agency is currently in existence, but a series of events occurs to create agency relationship - unauthorized agent performs a service on your behalf that you are unaware. upon learning of these services that turn out beneficial to you, you accept the responsibility for agent's act. Hence agency created by ratification 3. by Estoppel - mislead innocent person - individual knowingly allows another person to perform tasks beneficial to that individial. later, the individual determines that the person did not as properly and decides to pursue legal recourse but may be prevented from doing so because there was no legal duty to care for that inidivdual

Agency Disclosure Requirements

3 steps: 1. Disclosure - real estate agent discloses or presents the choice of being agent for only seller, only buyer or both. 2. Election - seller and/or buyer elect the type of representation (single or dual) 3. Confirmation - agent, seller, and buyer confirm the agency relationship and sign the required form (Disclosure Regarding Real Estate Agency Relationship) - listing agent discloses only to seller - selling agent discloses to BOTH seller and buyer, unless one agent represents both seller and buy, in which ase a single disclosure is made to the seller and buyer - agency relationship disclosed by the broker, not the individial salesperson/agent

Termination of Real Estate Agency

6 basic ways to terminate a real estate agency 1. Completion of Agency Agreement - agent fulfills responsibilities by securing a buyer - agent is elgible for commission and is normally paid at close of escrow 2. Expiration of Time - agent fails to find buyer by termination date of listing - most listings contain a clause that allows agent to give seller a list of prospects to whom the agent has shown property during term of listing. if any of these prospects buys property from seller or through another broker during designated protection period after listing expires, agent is enttiel to commission 3. Death of the Principal or Agent - agency automatically terminated if principal/agent dies during term of listing - exception: if principal dies after purchase agreement signed, in which agent entitled to commission (sale binding to heirs of decendent) 4. Destruction of Property - major catastrophe cause damage to property 5. Mutual Consent - principals and agent can mutually agree to terminate agency 6. Unilateral Action of the Agent or Principal - revoke, withdrawal, renounce, cancellation - liable for damages

Listing contract

Belongs to brokerage firm and if salesperson leaves, the contract remains w/ the brokerage

Real Estate Agency Relationship

Differs from an employer employee relationship - real estate agent's activities are not under compelte control of a principal Differs from an independent contractor relationship - agent is not free to do anything to achieve a sale

Subagents

If seller gives permission in the listing agreemnt, a real estate agent can assign some of duties to other licensed agents (subagents)

Working Out-of-State Properties

Problem: a CA broker wants to list or sell a property in antoher state where the CA agent is not listed Solution: real estate professionals must be licensed in the state the preoperty they are selling is located. If not, then the solution is to refer the sale to a broker licensed in that state and receive a referral fee

Ostensible Agent

agents purports to be the representative of a principal but has not been authorized to act on behalf of the principal and knowinly allows innocent third parties to believe that the unauthorized person is the principal's agent

Cooperating Agents

agents that attempt to find a buyer for the other broker's listing and then to act as the agent of the buy, not the subagent of the seller

Buyer's Agency

buyer may appoint a real estate broker to be the buyer's agent to find property for the buyer fiduciary relationship here is b/w buyer and broker

Actual Agent

directly appointed by principal where the agent is granted certain powers to act on behalf of the principal

Seller's Agency

majority of real estate agencies created when seller (principal) appoints a real estate broker (seller's agent) to find a buyer the seller's property broker legally bound to do the very best for seller

Responsibilities of Principals to Agency and Buyers

principal must tell real estate agent of any known defects in property so agent can properly disclose to buyer - if not disclose, seller can be held legally accountable - in CA, sellers of 1-4 residential units required to complete written disclosure regarding property known as a Transfer Disclosure Statement (before the sale)

Dual Agency

real estate broker may represent BOTH the buyer and seller in same transaction, but only w/ the knowledge and consent of both parties Note: 2 real estate licensees working for same broker will be a dual agency if one licensee has the buyer and the other has the seller real estate agents often carry errors-and-omissions insurance to help protect against conflict of interests in dual agencies

Agency

the representation of another person called a principal, by an agent, in dealings with a third persons agent empowerd to represent a principal in negotiating with a third party for the principal's benefit

Fiduciary Relationship

when a real estate brokerage is appointed as an agent by the principal to represent the seller in negotiations with a buyer one of loyalty, obedience, and confidentiality, and it obligates the agent to act in the principal's best interest The agent: 1. cannot profit from the agency without consent of principal 2. must obey all lawful instructions of the principal 3. must keep all information told to agent by principal confidential unless instructed to disclose or such disclosure required by law

Employer Employee Relationship

when an individual is hired by another to perfrom certain services under stric supervision of employer

Independent Contractor Relationship

when an individual is hired to accomplish result and litt or no supervision is required

Single Agency

when real estate broker acts as agent to only the seller or only the buyer