Folder.Chapter 6A: Agency Fundamentals

Split Agent

A licensee assigned by a broker to represent a buyer or seller in a transaction, usually in an in-company dual agency situation.

Dual Agent

A licensee who enters into any of the dual agency relationships set forth in Ohio License Law; when a licensee represents both the buyer and seller in the same transaction, and all management-level licensees at a brokerage. A management-level licensee is not a dual agent if there is more than one management-level licensee in the brokerage and that licensee either personally represents the buyer or seller or that licensee is the buyer or seller.

Management-Level Licensee

A licensee who is employed by or affiliated with a real estate broker and who has supervisory responsibility over other licensees employed by or affiliated with that real estate broker.

Customer

A party in a transaction with whom an agent does not have a fiduciary duty or relationship, but with whom an agent must still be fair and honest.

Agent

A person licensed to represent another (the principal) in a real estate transaction; a person authorized to represent the principal in dealings with third parties (clients or customers).

Principal

A person who grants another person (an agent) authority to represent him in dealing with third parties. Also referred to as the client.

Fiduciary Duties

Accounting Confidentiality Care Obedience Loyalty Disclosure Note: These fiduciary duties may also be remembered by OLD CAR: Obedience, Loyalty, Disclosure, Confidentiality, Accounting, and Reasonable care. This mnemonic device has a slight variation (e.g., care vs. reasonable care), but both are helpful in recalling the fiduciary duties an agent owes his clients and broker.

Conferring Actual Authority: Listing Agreements

Actual authority in an agency relationship for real estate transactions is created with a written document called a listing agreement. A listing agreement is a written agency contract between a seller and a real estate broker stipulating that the broker will be paid a commission for finding a ready, willing, and able buyer for a seller's property. A listing agreement is considered an employment agreement so the statute of frauds (which will be discussed later) does not require it to be in writing, unless the contract is for more than one year; though, in Ohio, license law requires all listings, regardless of length, to be in writing. Having listing agreements in writing and signed also helps avoid misunderstandings. Agents should check their brokers' policies in this area.

Actual versus Implied Authority

Actual authority is power or permission given intentionally to an agent by the principal, expressly or by implication. - Express authority is power or permission for a specific act or outcome communicated by the principal to the agent. - Implied authority is power or permission to do everything reasonably necessary to carry out the principal's express orders. For Example: A seller gives a broker express authority to find a buyer for the property. The broker has implied authority to market the property. However, remember that in Ohio a broker cannot place a "For Sale" sign on the property without expressed authority. An agent cannot have implied authority without express authority.

Creating an Agency Relationship

Agency is a relationship of trust created when one person (a principal) gives another person (an agent) the right to represent the principal in dealings with third parties. An agent's authority always comes from the principal. When an agent acts within the scope of his authority, the principal is legally liable for the agent's acts. So, a third party can sue the principal instead of, or in addition to, an agent. But if an agent exceeds his authority, the principal may not be liable. Typically, we enter into an agency relationship with evidence that the relationship has been created and that evidence illustrates the level of authority given.

What is an Agent?

An agent is a licensed person who represents another in a real estate transaction or a person authorized to represent the principal in dealings with third parties. A salesperson (agent) is an agent of his broker, acting as an independent contractor. A real estate salesperson may not work independent of his licensed broker and, in fact, can function only through the broker with whom he is associated. Everything must be done with the consent of the broker. The salesperson cannot independently enter into listing agreements or other contracts to represent people. Furthermore, a salesperson cannot independently conclude a sale, receive a commission, or advertise. All of these actions must be done in the name of the broker.

Subagent

An agent of an agent; a person an agent has delegated authority to so that the subagent can assist in carrying out the principal's orders.

Fraud

An intentional or negligent misrepresentation or concealment of a material fact; making statements that a person knows, or should realize, are false or misleading.

The Broker-Salesperson Relationship

As we discuss agency, remember that the broker-salesperson relationship is also an agency relationship. All duties of good faith and loyalty that agents must adhere to with respect to principals and clients must also be observed with their broker. A salesperson must put the best interests of his broker above his own. For Example: A broker may instruct a salesperson not to take a listing if a seller wants unreasonable marketing or won't pay the brokers designated rate of commission. It may bother the salesperson but they cannot take the listing if the broker says "no."

Caution Regarding Teams

Care must be taken when teams exist in a real estate brokerage. The team leader may be acting as a management level licensee without thinking of themselves as management level. If they are in a supervisory position or they are privy to the confidential information being gathered in the relationship, they are considered management level. In 2011, agency law changed for the practical by forbidding any licensee to be a dual agent when they are dealing their own real estate.

Negligence

Conduct that falls below the standard of care a reasonable person would exercise under the circumstances; an unintentional breach of a legal duty resulting from carelessness, recklessness, or incompetence. Negligence that causes harm is a tort.

Scope of Authority

Depending on the scope of authority, an agent may be classified as universal, general, or special: - Universal agent-An agent authorized to do everything that can be lawfully delegated to a representative (e.g., a court-appointed guardian). - General agent-An agent authorized to handle all of the principal's affairs in one area or in specified areas (e.g., a property manager). - Special agent—An agent with limited authority to do a specific thing or conduct a specific transaction (e.g., a real estate licensee). For Example: As an example of agency authority, consider property management, which is a challenging real estate career. The property management company is in an agency relationship with the property owner and owes the property owner the same fiduciary duties that are owed to all clients. Here, though, a property manager or property management company is a general agent because of the broad range of duties that must be performed under property management. A real estate licensee is classified as a special agent because duties are restricted to a specific task (e.g., selling the home or finding a buyer for a property).

Ohio Agency Law: Split Agency

Except for the previous two provisions, Ohio law recognizes that another agent from the same brokerage is not an agent of that client, unless that agent assisted in establishing the agency relationship or is specifically appointed, with the client's consent, to represent that client. Thus, two salesperson-level licensees in the same brokerage can represent two different parties in the same transaction, with only their broker (or other management-level licensee) considered a dual agent. This agency relationship is known as "in-company" or split agency. We'll look at an example of this relationship next.

Confidential Information

In the previous example, Sally (the broker) is the only one in a potentially compromising position since she has access to confidential information about both the buyer and seller. Of course, the integrity of the process can be destroyed if Dick accidentally learns confidential information about Jane's buyer or if Jane inadvertently stumbles across confidential information about Dick's seller. To avoid possible problems, Ohio's Agency Law provides that each brokerage must develop and maintain a written policy that states: - The types of agency relationships that its licensees may establish. - Whether dual agency relationships as described previously are allowed. - Specific confidential information (including how the brokerage intends to cover affiliated licensees with respect to confidential information). This official company policy must be given to clients and customers, but only upon their request. The agency and confidentiality policies must comply with minimum standards established by the Superintendent of Real Estate and the Ohio Real Estate Commission. It is important to note the implementation of such a policy does not relieve the brokerage from liability for failure of the brokerage, or any affiliated licensee or employee, to keep a client's information confidential.

Ohio Agency Law

In traditional real estate transactions, it was presumed that a real estate broker represented the seller unless there was a specific agreement stating that the broker was representing the buyer. The law changed as brokers representing buyers became more common and now, Ohio Agency Law no longer presumes that brokers represent sellers. Buyers like this arrangement because they now have an advocate; sellers and listing agents like this arrangement because they do not need to worry about liability for representations made by the buyer's agent or broker because that person is no longer their subagent.

Subagents and Buyer Brokers

It is important to understand that the promise of payment to a licensee or the source of a licensee's compensation does not necessarily establish or determine an agency relationship. In most cases, the seller is paying the commission to the real estate agents involved in the sale of a property, whether a subagent or a buyer broker is involved. - A subagent is an agent of an agent; a person who an agent has lawfully delegated authority to, so the subagent can assist in carrying out the principal's orders. - A buyer broker is an agent representing the interests of the buyer of a property. The broker's salespersons are subagents of the broker's client. Salespeople are subagents of the broker's client since the broker is the one who actually has entered into a contract with the client. Subagents represent the broker's client through their broker or a cooperating broker. It is illegal for a salesperson to represent a client directly, without a broker. Depending on the circumstances, both the principal and agent can be held liable for a subagent's acts.

Conferring Actual Authority: Purchase Agency Agreements

Purchaser agency agreements also confer actual authority in an agency relationship. In this type of agency contract a broker can negotiate a rate of commission to be paid to the broker by the buyer if the seller does not already offer compensation to the broker who brings the buyer for selling a property. An agent would not enter into a relationship with a seller without a listing agreement. Many brokers would like for their salespeople to get Purchaser Agency Agreements signed by buyers but quite often agents and buyers enter into something called "apparent agency," also known as "ostensible agency." This is when an agent acts like a person's agent; the person does not stop them, benefits from the actions, and the outcome is that they accomplish a purpose together. It becomes difficult for the principal to say they did not have agency. For Example: When one broker lists a property and another broker brings the buyer; the seller has an agent, the buyer has an agent, but only the listing broker had a listing agreement where the seller promised a commission and agreed to let the broker share the commission with the buyers broker.

Fiduciary

Someone in a position of trust and confidence held by law to high standards of good faith and loyalty.

Real Estate Agency Relationships

The basic real estate agency relationship is between a broker and a seller, or a broker and a buyer. The party with whom the broker (licensee) has entered into a contract to represent, and hence owes a fiduciary responsibility to, is referred to as the principal or client. All third parties are referred to as customers. A customer is a party in a transaction with whom an agent does not have a fiduciary duty or relationship, but with whom an agent must still be fair and honest. This distinction will become important later as we define the different fiduciary responsibilities a licensee has to clients and customers. The agency relationship is usually established by written agreement. It can take the form of a listing agreement for sellers or a Purchaser Agency Agreement with buyers. The Agency Disclosure Statement form (required by Ohio law)will help clients and customers understand who represents them and what loyalties and responsibilities are owed to them.

Ohio Agency Law: Models of Business

These four types of agency relationships, in different combinations, offer brokers five models of business under which a brokerage may operate: 1 Brokerage practicing split agency and dual agency 2 Brokerage practicing dual agency for all in-house transactions 3 Brokerage practicing exclusive buyer agency only 4 Brokerage practicing exclusive seller agency only 5 Brokerage practicing split agency but no dual agency (designated agency) The type of agency practiced by a brokerage is disclosed to customers and clients through the Consumer Guide to Agency Relationships, which is discussed later in this chapter (in Module 4).

Ohio Agency Law: Agency Relationships

Under Ohio's Agency Law, there are four types of agency relationships that may be entered into: 1 Agency relationship between a licensee and a seller. 2 Agency relationship between a licensee and a buyer. 3 Dual agency relationship between a licensee and both seller and purchaser. 4 In-company or split-agency relationship between two licensees in the same brokerage: One licensee and a seller and the other licensee and a buyer (designated agency).

Ohio Agency Law: Management-Level Licensees

When an agency relationship is formed between a brokerage and a client under any of these arrangements, the brokerage with whom the licensee is affiliated and the management-level licensees in that brokerage are also considered agents of that client. A management-level licensee is a licensee who is employed by or affiliated with a real estate broker and who has supervisory responsibility over other licensees employed by or affiliated with that real estate broker. A management-level licensee is not a dual agent if there is more than one management-level licensee in the brokerage and either: - The management-level licensee personally represents the seller or the buyer. - The management-level licensee is the seller or the buyer. Furthermore, any licensee affiliated with the brokerage who receives confidential information from an agent of the client is also considered an agent of that client. This has always been true for agency relationships formed under Ohio law.

A property manager is usually considered a a. general agent.This answer is correct. b. limited agent. c. special agent. d. universal agent.

a. general agent. Correct! A property manager or property management company is a general agent because of the broad range of duties that must be performed under property management.

How is an agency relationship with a seller created? a listing agreement b purchaser agency agreement c sales agreement d subagency agreement

a. listing agreement Incorrect. The answer is A. Agency relationships are created with written agreements. The relationship between a broker and a seller is created with a listing agreement. The relationship between a broker and buyer is created with a purchaser agency agreement. A sales agreement is between a buyer and seller; it creates no agency agreement.

Joe's real estate brokerage practices designated agency. Agent Sara brings Joe a listing agreement with a seller. Agent Ben brings Joe a purchaser agency agreement with the buyer for that property. Who is a dual agent in this scenario? a Ben b Joe c Sara d no one

b. Joe Correct! In Ohio, if a broker has different affiliated agents representing both clients in a single real estate transaction, the broker is considered to be a dual agent.

Which statement regarding the broker-salesperson relationship is TRUE? a. It is not a fiduciary relationship since a salesperson works for the client. b. It is usually a subcontractor relationship. c. Salespeople are agents of their broker. d. All of the above

c. Salespeople are agents of their broker.This answer is correct. Correct! A licensed salesperson is considered to be an agent of his or her employing broker, working on behalf of the broker, generally as an independent contract, not a subcontractor. This is a fiduciary relationship.

Which statement regarding an agency relationship is FALSE? a An agency relationship may be created between a licensee and a buyer. b It is illegal for a salesperson to represent a client directly, without a broker. c The seller has a fiduciary responsibility toward the buyer. d Subagency is when a licensee is an agent of an agent.

c. The seller has a fiduciary responsibility toward the buyer. Incorrect. The answer is C. It is the licensee who owes fiduciary duties to a seller client, not the other way around. Agency relationships may be created between brokers and buyers, as well as between brokers and sellers. And note, that legal relationship is with the broker; a salesperson cannot represent a client directly. Instead, a salesperson acts as a subagent of the broker, essentially, an agent of an agent.

Kim is a licensee at ABC Brokerage. She tells licensee Lou, who sits at the next desk, that her client is desperate to sell because he's being transferred. What is the impact of Kim sharing this confidential information? a ABC Brokerage cannot represent a potential buyer. b ABC's broker now becomes a dual agent. c Kim is in violation of Ohio agency law. d Lou is considered an agent of the seller.

d. Lou is considered an agent of the seller.This is the correct answer. The answer is D. Any licensee affiliated with the brokerage who receives confidential information from an agent of the client is also considered an agent of that client.