Chapter 6: Law of Agency and Real Estate Brokerage

True

T/F: A customer becomes a client by entering into an Agency Agreement?

Dual agency broker

A _______ broker agrees to represent both the buyer and the seller, with their written permission, in a real estate transaction. Operating under the Common Law of Agency, the dual agent may appoint a designated agent to represent the buyer and appoint another designated agent to represent the seller. In Texas, brokers who agree to represent both the buyer and the seller, with their written permission, in the same transaction must do so as an Intermediary, appointing an agent to work with the buyer and one to work with the seller.

Single-agency broker

A ________ broker will represent either the buyer or the seller, but not both in the same transaction. Will not act as dual agent when his/her buyer-client is interested in purchasing one of the broker's in-house listings. Instead the broker will recommend that either one of the parties (usually the buyer) find another broker to represent him/her or continue in the transaction unrepresented. Simply stated, a single agent will represent either the buyer or the seller, but not both in the same transaction.

1. As the intermediary, Broker Susan can never be an appointed associate. 2. We cannot appoint Susan to Michelle(buyer) BC we cannot appoint an associate to one side without appointing an associate to the other side.

A broker might have just one agent on board. In that case, the broker is actively listing and selling property. Broker Susan is the listing agent, and Agent Sean, her only agent, has a client buyer. They can do this transaction but are limited to Intermediary Without Appointments for two reasons:

1. The proposed transaction is for a residential lease for not more than one year, and no sale is being considered. 2. The license holder meets with a party who is represented by another license holder. 3. The communication occurs at a property that is held open for any prospective buyer or tenant, and the communication concerns that property.

A license holder is not required to provide the Information About Brokerage Services (IABS) if:

agency agreement

A potential buyer remains an unrepresented customer until the broker and buyer enter into an ________________. When an agent is talking to a seller during a listing presentation, the seller is an unrepresented customer until an agency agreement is finalized.

listing ; buyer/tenant representation

A seller signs a ________________agreement and a buyer signs a ___________ agreement.

Subagency

According to the Texas Real Estate License Act, when one firm sells a property listed by another firm to a buyer it does not represent, the selling firm represents the seller in a ________ relationship. **selling broker is subagent to the listing broker! For the purpose of this transaction, City Realty becomes a subagent of Acme. By proceeding with the transaction, the subagency relationship is created automatically with no discussion or action needed or the part of the listing or selling firm. Chris is an unrepresented customer, City Realty is actually representing Seller Steve!

1. A listing side occurs when the seller retains the services of a broker. 2. A selling side occurs when the buyer retains the services of a broker. The agent working with the buyer is referred to as the selling agent.

All transactions are said to have two "sides" Types of transactions:

Express authority

An agents authority (power) to act on behalf of a principal (seller, explicitly granted by a written listing agreement between the agent and principal. (the written document is evidence that the agency relationship exists and provides the agent with ___________________ authority. Also comes from the specific oral instructions given to the agent by the principal.

become a client

Any potential party to a transaction is an unrepresented customer until they become a ____________ of the broker by entering into an agency agreement.

1. Single-agency broker 2. Transactional broker 3. Dual agency broker

Just like there are different types of agency, there are different types of agents who play different roles in a transaction:

Total commission paid on the sale was $20,000, which is customarily paid by the seller. The commission charged is negotiated between the seller and the broker and is not set or recommended by TREC or any other org. The commission to be paid by the listing broker to a cooperating broker is negotiated between the seller and listing broker in the listing agreement. At funding, both Acme and City were paid $10,000 each. Each firm has its own compensation policy, and we see that Acme paid 50% of the fee that it received to Agent Sue. City Realty has a different plan and paid Agent Connie 70% of the commission received. Acme: 50/50 plan; Broker bob=$5,000 & Agent Sue=$5,000 City: 70/30 plan; Broker Sarah=$3,000 & Agent Connie=$7,000

Broker and agent compensation: cooperative sale example:

Intermediary Relationships

Broker reps both the buyer and seller Broker remains neutral and avoids negotiating. The broker must first get written consent of both parties

A buyer is an unrepresented buyer until he/she enters into an agency relationship with a broker. If the license holder begins negotiating on behalf of the buyer, the buyer may be led to assume that the license holder is representing him. *License holders should always refrain from providing client services to any party to a transaction before entering into an agency agreement.

Example of implied agency:

1. a seller who lists a property for sale 2. a landlord who needs a tenant 3. a buyer who wishes to purchase a property 4. a tenant searching for a rental property 5. a property owner seeking professional management of investment property.

Examples of principals in real estate:

- Limited P.O.A - One line of business - Agent to broker - Property Mgr/Owner

General Agency into perspective:

Cooperative sale

If a property is listed by one firm and later sold by another, the sale is a ______________ sale. The selling broker is "cooperating" with the listing broker in order to complete the transaction. Many firms are members of the Multiple Listing Service, which facilitates cooperative sales through the use of a shared database of listing and sale data.

CRIP: Compensation - pay the commission when earned Reimbursement - repay approved expenses Indemnification - defend the agent when the agent acts on the client's instruction Performance - comply with the written agreement

In creating agency relationships, a Principal's duties to an agent are:

OLDCAR: Obedience - adhere to given lawful instructions Loyalty - place the client's best interests first Disclosure - reveal all known facts, give advice and options Confidentiality - protect the private information of the client Accounting - handle funds with care. Never engage in commingling or conversion Reasonable care - protect the property and legal interest of the client Note: Trust is NOT a duty.

In creating agency relationships, an Agent's duties to his/her principal are:

listing; representation

In real estate, the ________ agreement establishes a special agency relationship between the broker and a seller or landlord. A buyer/tenant ______________ agreement will also create a special agency relationship with the broker.

Independent contractor

In the Real Estate Brokerage business, most license holders are not employees of the broker. They are _______ engaged in a principal-agent relationship, which is the general agency relationship that exists between the broker and sponsored license holders.

- Compliance with fair housing laws - Use of promulgated forms - Compliance with all aspects of the Texas Real Estate License Act - Compliance with advertising regulations - Compliance with regulations for disclosure

Regarding general agency: The broker is responsible for the following types of activities on the part of his association:

Texas Real Estate License Act (TRELA)

Regarding general agency: The broker must ensure that all activities are handled legally and ethically and that the rules and regulations of the ____________________ are being followed at all times. The best way for the broker to accomplish this is to sponsor conscientious, well-trained individuals.

Yes, they can. However, they are limited to Intermediary Without Appointments.

Some brokers, Like Broker Susan, are brokers who have no agents. Can they do an Intermediary transaction?

- Advice/opinions only - No decisions! - Agent to client - Broker to client - No binding on behalf of principal - "limited agency"

Special Agency into perspective:

seller; buyer

The IABS should be provided to a _______ prior to a listing presentation and to a ________ prior to showing a property or discussion of a possible purchase. * There is no statutory requirement that they sign the statement. If individual declines to sign, the license holder should not in the signature block "declined to sign" initial it, and date the form. give a copy to the prospect and keep a copy for your files as evidence that you presented the form.

Special Agency

The ____________ agency relationship is the most limited of all the agency relationships and is also referred to as "limited agency." The special agent is NOT able to bind the principal BC he/she is not allowed to sign or accept any terms or conditions on behalf of the principal. The special agent must simply follow the instructions of the principal.

Information About Brokerage Services (IABS)

The _______________ provides consumers with necessary information regarding agency relationships with license holders. License holders should provide IABS to all potential parties to a transaction at the first substantive discussion of a possible transaction. A substantive discussion does not always occur at the first face-to-face meeting. The license holder should present the IABS to the potential party as soon as the license holder has determined that a discussion has become substantive. Substantive discussion would include any info. that is not easily accessed by public records.

Deceptive Trade Practices Act (DTPA)

The ________________ is a Texas law passed in 1973 that allows an aggrieved consumer to sue a seller of goods for damages. The act by the servicer of the goods has to be deceptive or unfair for the consumer to sue for monetary damages successfully. Goods - tangible chattels (real property is tangible when purchased or leased). Services - means work, labor, or repair of goods. Brokerage is a service. Consumer - An individual, corporation, partnership, or government source who seeks to acquire or purchase the goods to services.

Implied agency

The behavior of the parties (agent and principal) creates an _____________ agency. If license holder behaves in a manner that makes a party reasonably believe that he/she is being represented, an implied agency relationship may have been created.

Writing

The best way (preferred method) to create an agency relationship is in ___________. The agreement should clearly define the positions of the parties and the duties and expectations of each. It is the safest way to ensure that both parties understand the relationship and can be very helpful if problems or misunderstandings arise.

- Timely renewal of license - Adequate opportunities for generating income - Completion of continuing education requirements - Company car, health insurance, vacation, or disability benefits

The broker will NOT be responsible for the following types of activities on the part of his association:

General agency example

The following is an example of what type of agency? A relationship between a broker and his/her associates. A license holder sponsored by a broker will act as the general agent of that broker. A general agent may bind the principal, meaning that the agent may sign specific contracts and agreements in the principal's name. The broker's agents are authorized to carry out several activities typical of the business, including but not limited to: - securing listings with sellers and landlords - securing buyer representation agreements with buyers and tenants - marketing listed properties - showing properties to prospective buyers - preparing offers - negotiating offers ** As the principal, the broker is liable for all of the actions of the agent.

Client

The principal is also known as the ___________.

disclose

The purpose of a Seller's Disclosure Notice is to have the owner of the property _________ all facts and defects concerning the property. SELLER'S DISCLOSURE NOTICE: TEXAS REAL ESTATE COMMISSION FORM OR Texas REALTORS form.

1. The sale must be a cooperative sale, AND 2. The buyer must be an unrepresented customer.

Two conditions must be met to have a subagency relationship:

1. Intermediary with appointments - The appointed associates will give advice and opinions (which means to negotiate) to their respective parties. The broker must make the appointments in writing. REALTORS most often use the Intermediary Relationship Notice, which names the agents and assigns them to a specific party. (two agents involved) 2. Intermediary without appointments - In cases where an agent has the opportunity to sell their own listing. (one agent involved listing/selling). With her Broker's permission, Agent Sue can go ahead and complete the transaction but cannot give advice and/or opinions to either party. Sue is an intermediary representative of her broker and cannot negotiate for one client to the detriment of the other client. When the intermediary process begins, the parties must be notified and appointments made (if any). In this case, there will be no appointments BC there is only one agent in the transaction. **The parties must be notified in writing.

Two forms of intermediary:

1. The principal will count on the agent for specific professional advice. The agent is the "expert." 2. The relationship almost always involves money or property. As a fiduciary, the agent must work in his/her client's best financial interests at all times.

Two key points concerning agency:

1. The transaction must be an in-house sale. 2. Both sides (buyer/seller or landlord/tenant) must be clients.

Two rules to determine if a transaction is to be done intermediary:

1. Universal agency 2. General agency 3. Special agency

Types of agency (3):

- Durable P.O.A - All lines of business - Very rare - Minors, Imprisonment - Out of country, Medical

Universal agency into perspective:

Agent connie is working directly with buyer Chris (unrepresented customer), but is representing Seller Steve. If buyer Chris reveals anything that would compromise his negotiating position, Connie would be OBLIGATED to inform seller Steve. For example, if Chris is about to make an offer and tells Connie that he is willing to pay more than the offer, Connie would be obligated to pass this info. on when delivering the offer to Agent Sue at Acme.

What are the ramifications of subagency:

1. The property is sold by a firm other than the listing firm, which is referred to as a cooperative sale. 2. The property is sold by the listing firm, which is referred to as an in-house sale.

When a brokerage firm sells a property, two possibilities exist:

In-House Transactions

When a brokerage firm sells its listing, it is known as ___________. The sale will have two sides and the broker is on both the listing and the selling side of the transaction. A conflict of interest exists BC both parties are clients, and issues arise when one person (Broker Bob) represents the interests of both sides of a transaction. Ex: It turns out that Buyer Chris wants to make an offer on seller Steve's property. Recall that all agents of the firm have a fiduciary duty to all clients of the firm; therefore, BC Sue, Megan, and Bill are all Broker Bob's agents, they all have the same duty of representations to both Seller Steve and Buyer Chris. ***In-House Sale transaction: The entire gross commission is paid to Acme Realty. 50/50 Plan Listing side: $10k; bob: $5k; Agent Sue $5k Selling side: $10k; bob $5k; Agent Bill $5k

Customer

When a potential buyer contacts an agent for information regarding a property, he/she is a ____________.

Real Estate License Holders lawsuits:

When a real estate license holder is sued, it is often an action under the DTPA. The lawsuit brought about under DTPA has the potential for treble damages if the trier of fact, being a judge, or jury believes that the agent knowingly or intentionally meant to deceive. Intentionally: means actual awareness or flagrant disregard of prudent and fair business practices. Knowingly: means the actual awareness of a falsity, deception, or unfairness of an act. Ex: suppose an agent deliberately made a false statement about the property's condition or intentionally did not disclose a known defect. In that case the agent could be liable for 3 times the economic damages under DTPA. Plaintiff can also sue for mental anguish.

Listing side of a transaction

_______ occurs when the seller retains the services of a broker.

Selling side of a transaction

________ occurs when the buyer retains the services of a broker. The agent working with the buyer is referred to as the selling agent.

Ostensible agency

__________ agency exists when actions lead another person to assume that one is an agent. Ex: If you had the key to your neighbor's home and allowed a tradesperson to enter, it is reasonable for that tradesperson to believe you are your neighbor's agent.

Agency

__________ relationship exists when one person (the agent) acts for or on behalf of another person (the principal). The principal hires and gives authority to the agent. The agent represents or works for the principal. IOW, the principal gives the power, and the agent acts.

Universal agent

____________ agent has full authority to conduct business on behalf of the client. - can sign documents and bind (obligate) the client in the same manner the client would do in person. - It is the equivalent of having unlimited power of attorney and is very rare in real estate.

General agent

____________ agent has the right to represent a principal in a particular type of transaction or business. Ex: The property manager is primarily responsible for preserving an investment property's value while generating income as an agent for the owners. Duties: -Securing tenants - collecting rents - caring for the premises - budgeting and controlling expenses - hiring and supervising employees - keeping proper accounts - making periodic reports to the owner ***BC the property owner has given the agent so much authority, the property owner is liable and accountable for all the agent's actions.

Agency coupled with an interest

____________ occurs when a license holders owns a property on the market or is interested in buying a property. A license holder must ALWAYS disclose this dual role. A real estate license holder is obligated to advise a property owner as to his/her opinion of the market value of a property when negotiating a listing or offering to purchase the property for the license holder's own account as a result of contact made while acting as a real estate agent. If a family or business relationship exists between an agent and a property owner or buyer, this should also be disclosed.

Agency of ratification

______________ occurs when an agent without prior authorization, and upon learning of this action, the principal accepts it. Ex: a seller relocating to another state left the home vacant and listed with a local real estate agent. The agent has found a buyer, and the seller accepts the offer. At closing, the seller is surprised to learn that he will receive one week's rent in addition to the sales price. Even though the agent had no authority to do it, the seller's agent authorized the buyers to move in one week before closing. This behavior on the part of the agent was extremely risky and unprofessional. The seller accepts this action on the part of the agent and receives rental income in addition to the sales price. By accepting the rent payment, this seller has ratified the unauthorized action of the agent.

Senate Bill No. 489

________________, An amendment passed by the Texas Real Estate License Act, is the legislation that gave the industry the Intermediary process, along with representation disclosure requirements. Sec. 1101.558 REPRESENTATION DISCLOSURE (b) A license holder who represents a party in a proposed real estate transaction shall disclose, orally or in writing, that representation at the time of the license holder's first contact with: (1) another party to the transaction; or (2) another license holder who represents another party to the transaction. *** REPRESENTATION MUST BE DISCLOSED AT FIRST CONTACT

Transactional broker (AKA transaction coordinators, finds, or middlemen)

a ___________ broker facilitates a buyer and a seller to reach an agreement in a real estate transaction, even though he/she does not have an agency relationship with either.

Fiduciary

the relationship of an agency, between principal (client) and the agent is a _____________ relationship, which means that it is a relationship based on TRUST.