Real Estate Brokerage: Real Estate Brokerage Relationships

Coversion vs Commingling

"Conversion" is the practice of using the funds of others entrusted to the broker for safe-keeping to pay personal or business expenses. "Commingling" is the practice of mixing client funds with the broker's own business or personal funds.

If the transaction is not consummated, the broker may still be entitled to a commission if the seller:

• had a change of mind and refused to sell, • has a spouse who refused to sign the deed, • had a title with uncorrected defects, • committed fraud with respect to the transaction, • was unable to deliver possession within a reasonable time, • insisted on terms not in the listing (for example, the right to restrict the use of the property) or • had a mutual agreement with the buyer to cancel the transaction.

Price Fixing

The practice of conspiring to establish fixed fees or prices for services rendered or goods sold. This occurs when like businesses enter into an agreement to set prices for products or services rather than letting competition in the open market establish those prices. In the real estate business, price-fixing occurs when competing brokers agree to set sales commissions, fees or management rates.

Single Agency

The practice of representing either the buyer or the seller but never both in the same transaction, as opposed to dual agency in which the agent represents both parties to the same transaction. In this relationship, the agent represents only one of the parties to any single transaction. The agent owes fiduciary duties exclusively to that principal, who may be either the buyer or the seller (or the landlord or the tenant) in a transaction. Any third party is a customer. While a single agency broker may represent both sellers and buyers, he or she cannot represent both in the same transaction and remain a single agent

Buyer as Principle

When a buyer contracts with a broker to locate property and represent his or her interest in a transaction, the buyer is the principal--the broker's client. The broker, as agent, is strictly accountable to the buyer. The seller is the customer.

Group Boycotting

When competitors get together and agree not to do business with someone

Attorney-in-Fact

A competent and disinterested person who is authorized by another person to act in his or her place pursuant to a Power of Attorney

Misrepresentation

A false statement or concealment of a material fact.

Lead-Based Paint Hazards Reduction Act of 1978

A federal law for sellers and lessor of residential properties that were built prior to 1978 are required to inform the prospective purchasers or tenants of the fact that there may be lead-based paint in the housing. Buyers/lessees have 10 days from the date of the disclosures within which to inspect the property for the presence of lead-based paint. Frequently the buyer's mortgage lender requests inspections or tests to determine the presence or level of risk.

Errors and Omissions (E&O) Insurance

A form of insurance that covers liabilities for errors, mistakes and negligence in the usual listing and selling activities of a real estate office.

A multiple-listing service (MLS)

A multiple-listing service is the pooling of listing information by area brokers. The member brokers agree to help each other sell their listings and share compensation, thus expediting sales by increasing each property's exposure to a greater number of potential buyers.

Reliance

A person that fraudulently makes a misrepresentation of fact, opinion, intention, or law for the purpose of inducing another to act or to refrain from action, is subject to liability to the other in deceit for pecuniary loss caused to him by his justifiable _____________ upon the misrepresentation.

Broker

A properly licensed individual, corporation or partnership who acts as an intermediary between parties to a transaction.

The Broker - Salesperson Relationship

A real estate salesperson is a person that is licensed to perform real estate activities on behalf of a licensed broker. The salesperson is a general agent of the broker and works under the license of the broker. The broker is fully responsible for the activities performed in the course of the real estate business by all persons licensed under the broker. In turn, all of a salesperson's activities must be performed in the name of the broker or the firm under which the broker is licensed. The salesperson can carry out only those responsibilities assigned by the broker with whom he or she is affiliated and can receive compensation only from that broker. As an agent of the broker, the salesperson owes fiduciary duties to the broker and has no authority other than that which is specifically authorized by the broker. The salesperson may not bind the broker to listings, buyer brokerage or property management agreements without the written consent of the broker.

Agency

A relationship created when one person, the principal, delegates to another, the agent, the right to act on his or her behalf in business transactions and to exercise some degree of discretion while so acting.

Fiduciary

A relationship that implies a position of trust or confidence wherein one person is usually entrusted to hold or manage property or money for another.

Equal Dignities Rule

A rule of agency law that stipulates that when a contract is required by law to be in writing, the authority of an agent to enter into such a contract on behalf of his or her principal must also be in writing

In-House Sale

A sale in which the listing broker is the only broker in the transaction; there is no outside broker involved as in a cooperative sale.

Ostensible Agency

An actual agency relationship that arises by the actions of the parties rather than by express agreement. For example, an owner knows a broker is showing the owner's vacant lot to prospective buyers without authority to do so. Unless the owner takes steps to stop such unauthorized showings, the law considers that third parties have just cause to believe the broker to be the owner's agent

Implied Agency

An actual agency that arises by actions, facts and circumstances including the words and conduct of the parties.

Draw

An advancement of money based upon commissions earned but not yet paid.

Single Agency - Seller as Principal

If a seller hires a broker to be the seller's agent in the marketing of the seller's real estate, the seller is the principal, the broker's client. In a single agency, any buyer who contacts the broker to look a properties listed with the broker's firm is the broker's customer. Though obligated to deal fairly with all parties to a transaction and to comply with all aspects of the license law, the broker is strictly accountable only to the seller. The customer (the buyer) represents him/herself or is represented by an agent from another firm.

Disclosure

Important disclosures to sellers by a listing agent have included such things as the relationship between an agent and other parties to the transaction; the existence of other offers; the status of the earnest money deposit; the buyer's financial condition; the property's true worth; the fact that there will be a commission split between a listing broker and a selling broker; and the legal effect of important contract provisions. Important disclosures to buyers by buyers' agents include such things as: the relationship between the agent and other parties to the transaction; the existence of and, if possible, terms of other offers; the status of the earnest money deposit; material limitations on the seller's ability to perform; the availability of financing and types of financing available; the property's true worth; who is paying the commission and the fact that it may be split between brokerages; material defects in the property or the title to the property; the legal effect of important contract provisions.

Real Estate Brokerage Relationships MO

In Missouri the broker MUST enter into a written agency agreement with the client in order to represent any party to a real estate transaction.

Real Estate Brokerage Relationships

In the typical real estate transaction the broker works as an agent for one of the parties to the transaction. An *agent* is one who *represents* the interests of another.

Allocation of Customers or Market Allocation

Involves an agreement between brokers to divide their markets and refrain from competing for each other's business, agreeing to specific territories within which they will operate exclusively or by markets, such as by price range or category of housing

Latent Defects

Hidden structural defects presumably resulting from faulty construction, known to the seller but not to the purchaser and not readily discoverable by inspection A hidden or concealed defect that could not be discovered by reasonable and customary observation and inspection. Selling a property as is does not excuse the seller from liability for failure to disclose know latent defects.

Illegal Broker Compensation

It is illegal for a broker to pay a commission to anyone other than a salesperson licensed under the broker or another licensed broker. Fees, commissions or other compensation cannot be paid to unlicensed persons for services that require a real estate license. "Other compensation" includes tangible gifts such as a new television or other premiums, such as a vacation. This is not to be confused with referral fees paid between brokers for leads. Referral fees are legal as long as both individuals are licensed.

Brokerage

*Brokerage is simply the business of bringing parties together for the purpose of a particular type of transaction.* Mortgage brokers bring borrowers and lenders together; stockbrokers bring investors and corporations together; and real estate brokers bring together buyers and sellers or landlords and tenants for the purpose of a real estate transaction.

Agency relationships are governed by three areas of law

*Common law* (the rules of society based upon the practices of people and court decisions); *statutory law* (the laws enacted by congress); and *administrative law* (the rules and regulations of administrative agencies of the government, such as the Missouri Real Estate

Undisclosed Dual Agency

*Giving the buyer any specific advice on how much to offer can lead the buyer to believe that the salesperson represents the buyer's interests and is acting as the buyer's advocate (agent).* Such actions can create an *implied agency* with the buyer and violate the duties of loyalty and confidentiality to the seller-client. This violates licensing laws. it can result in the rescission of the sales contract, forfeiture of a commission, a lawsuit for damages and possible disciplinary action against the salesperson's and broker's licenses.

The duties owed to customers include:

*Honesty.* The customer must be told the truth about the transaction and the property. *Fair Dealing.* Agents must not take unfair advantage of the customer's ignorance. For example, agents must disclose their brokerage relationships to customers so that the customers know whether or not personal or financial information they reveal will be kept confidential. *Disclosure.* Agents must disclose to all customers all adverse material facts about which the agents actually know or should have known.

Forms of Real Estate Brokerage Buisness

*Sole proprietorship* (a single-owner company), a corporation, a partnership or a limited liability company The office may be independent or a part of a regional or national franchise. The business may consist of a single office or multiple branch offices. A typical real estate brokerage may specialize in one kind of transaction or service or may offer an array of services.

A broker representing a seller must exercise reasonable skill and care in

-guiding the seller in deciding on a reasonable listing price and an adequate sales price; -discovering pertinent facts and disclosing them to the seller; -investigating the material facts concerning the sale and asking the seller questions (the duty to interrogate) that will clarify the seller's needs and protect the seller's best interest (including obtaining a Seller's Property Condition Disclosure or asking questions concerning the property condition so that any defects can be disclosed to potential buyers); -accurately preparing and/or explaining portions of the listing contract, sales contract and other relevant legal documents (this does not include interpreting the documents for the seller); -assisting the seller in meeting deadlines and closing dates; -advising the seller to obtain expert advice in matters beyond the broker's expertise; and -protecting the seller's interest in marketing and showing the property.

Due Diligence

1. A fair, proper and due degree of care and activity. 2. A time period in which a buyer is given the opportunity to have experts inspect the property, examine the title and review the leases to determine whether the property matches the buyer's needs.

Cooperating Broker

A broker who assists another broker in the sale of real property. Usually, the cooperating broker is the (selling) broker who found the buyer who offers to purchase a piece of property that is listed with another (listing) broker.

Subagency

A subagency is created when one broker, usually the seller's agent, appoints other brokers (with the seller's permission) to help perform client-based services on the principal's behalf. These cooperating brokers owe fiduciary duties directly to the listing broker and have the same fiduciary obligation to the client that the listing broker does, helping produce a ready, willing and able buyer for the seller's property. This arrangement may be created through an offer of cooperation and compensation made in a multiple-listing service (MLS). When a listing is placed with a multiple-listing service, the broker is making a unilateral offer of subagency unless otherwise specifically stated in writing. This listing broker and seller may be held vicariously liable for the conduct of all the subagents and their salespersons. ex. In the previous example in which Dick gave Sherry a $5 bill and asked her to pick up a pizza he had ordered, if Sherry is too busy to pick up the pizza and, provided Dick so authorizes her, she might give the $5 bill to Bill and ask that he perform the service for Dick. Sherry has appointed Bill as her subagent. Sherry is still responsible for ensuring that the pizza is paid for, picked up and delivered to Dick, along with Dick's change, if any. If Bill fails to pick up the pizza or picks it up but doesn't deliver it, Sherry is responsible.

Ethics

A system of moral principles, rules and standards of conduct.

Transaction Broker

A transaction broker is a licensee who assists one or both parties to a real estate transaction without an agency or fiduciary relationship to either party to the transaction and who is, therefore neutral, serving neither as an advocate or adviser to either party. A neutral licensee (broker or salesperson) who assists one or both parties to a real estate transaction. The transaction broker assists the parties in facilitating the transaction without having an agency or fiduciary relationship with either party. The transaction broker cannot take sides and must not advise either party. the transaction broker can provide the owner with facts and information that will assist the owner in arriving at an appropriate list price. Whether working as a transaction broker or an agent, you should always make it clear that a market analysis performed by a real estate licensee is no substitute for a formal appraisal performed by a licensed appraiser. In order to default to transaction broker status, licensees must inform both clients of the change to transaction brokerage immediately upon its occurrence and have the disclosure confirmed in writing prior to signing of a contract between the parties. A licensee who fails to make this disclosure will be a dual agent, which may be in conflict with the broker's written office policy manual.

Power of Attorney

A written instrument authorizing a person, the attorney-in-fact, to act as the agent on behalf of another to the extent indicated in the instrument

Common Law

That body of law based on usage, general acceptance and custom.

Implied Agency

An agency may also be created by implied agreement. This occurs when the actions of the parties indicate that they have mutually consented to an agency relationship. A person acts on behalf of another as agent; the other person, as principal, delegates the authority to act. The parties may not have consciously planned to create an agency relationship. Nonetheless, one can result unintentionally, inadvertently, or accidentally by their actions. This may also be known as an *ostensible agency.* ex Ms. Seller is selling her home by herself and puts up a for-sale sign on the lawn. You drive by, see the sign, and stop in. You identify yourself as a real estate agent and ask some questions about the house. Ms. Seller tells you she doesn't want to list the house for sale with any brokerage. She does tell you to feel free to bring any possible buyers around who might want to see the house. The next day you bring Mr. and Mrs. Buyer, who really like the house and want to make an offer. You tell Ms. Seller and begin negotiating a deal. If the matter comes down to commissions and lawsuits, only a court can finally decide, but you and Ms. Seller probably have established an implied agency relationship because of both your actions.

Agency Coupled With an Interest

An agency relationship in which the agent acquires an estate or interest in the subject of the agency (the property). Such an agency cannot be revoked by the principal, nor is it terminated upon the death of the principal. For example, a broker may supply the financing for a condominium development provided the developer agrees to give the broker an exclusive listing to sell the units.

Subagent

An agent of a person who is already acting as an agent for a principal. The original agent can delegate authority to a subagent where such delegation is authorized by the principal.

General Agent

An agent that may represent the principal in a broad range of matters related to a particular business or activity. The general agent may, for example, bind the principal to any contract within the scope of the agent's authority. A general agent may be appointed through a property management agreement or a general power of attorney. One who is authorized by a principal to perform a broad range of acts associated with the continued operation of a particular job or certain business of the principal. The essential feature of a general agency is the continuity of service, such as that provided by a property manager.

Limited Agent

An agent whose authority is limited to those acts specifically set forth in the written agreement with the client. A limited agent may be a special agent, such as a listing broker or a buyer's agent, or he/she may be a general agent, such as a property manager. A limited agent is NOT a universal agent.

Imputed Notice

An agent's knowledge that is binding on the principal because of the agency relationship between them. If, for example, the buyer's agent is notified of the seller's acceptance of the buyer's offer, the buyer could not thereafter withdraw the offer even though the buyer had no actual notice yet of the acceptance of the contract. NOTE: Imputed notice does not apply in a transaction brokerage relationship.

Dual Contract

An improper or fraudulent contract to buy property that contains terms and financial conditions that differ from the original or true agreement and falsely represents the parties' true intentions.

Material Fact

Any fact that is relevant to a person making a decision. Agents must disclose all material facts to their clients. Agents must also disclose to their customers material facts about the condition of the property, the condition of the title to the property, the other party's ability to perform, etc. Agents must not disclose confidential information about their client to customers. Agents must be careful not to misrepresent any material facts. (See misrepresentation).

Sherman Antitrust Act

At the federal level, this act provides specific penalties for a number of illegal business activities

Buyers' Brokers

Brokers and salespersons who have become specialists in the emerging field of buyer brokerage, representing buyers exclusively.

Accounting

Brokers must give an accounting of all money and property received in connection with the client's transaction. Monies received by the broker as the result of a sales contract are trust funds and must be held for the benefit of the client. A broker must deliver the funds to the client within a reasonable time (usually at closing unless otherwise authorized by both parties in writing). Brokers are required to give a complete and accurate accounting of the funds upon disbursement. In Missouri, both the listing and selling brokers are responsible for ensuring that both the buyer and seller receive complete, accurate closing statements. If the parties are represented by different brokers, it is the listing broker's responsibility to ensure that both parties receive complete and accurate closing statements.

Caveat Emptor (let the buyer beware)

Buyers were more or less on their own and responsible for their own decisions, good or bad. The buyer must examine, judge and test for himself or herself in order to decide whether or not to purchase or how much to pay. No longer the case in the real estate brokerage business. However, the doctrine does still apply in judicial sales.

The duties and responsibilities of an agent

Care, obedience, accounting, loyalty and disclosure.

Real Estate Brokerage Relationships Compensation

Compensation. The source of compensation does not determine the agency relationship. In other words, an agent does not necessarily represent the party that pays the compensation. In fact, an agency relationship can exist even if no compensation is paid.

Puffing

Exaggerated statements of opinion of a property's benefits. This includes statements such as, "This is the most beautiful property in the neighborhood." It does not include statements that relate to material facts such as, "The well on this property is so deep, it will never run dry."

Vicarious Liability

Liability created not because of a person's actions, but because of the relationship between the liable person and other parties. For example, a real estate broker may be vicariously liable for the acts of his or her salespeople even if the broker did nothing to cause the liability. If a buyer purchase a property and later discovers that there is a serious problem with the condition of the property or the title to the property, the buyer may be able to file a lawsuit against the real estate licensees involved and the seller to recover damages or even rescind the contract. Under the common law of agency doctrine of *vicarious liability,* clients could be held liable for misrepresentations made by their agents even if they didn't know of the misrepresentations.

Fraud

Misrepresentation with the intent to deceive. This includes intentional false statements about a property and concealment of important facts about a property. If a contract to purchase real estate is obtained as a result of fraudulent misstatements by the seller or listing broker, the contract is voidable by the purchaser.

Independent contractor

Most salespersons work has independent contractors and a broker's relationship with an independent contractor is very different. An independent contractor works more independently than an employee and a broker may not exercise the same degree of control over the salesperson's activities. While the broker may control what the independent contractor does, the broker cannot dictate how to do it. The broker cannot require the independent contractor to keep specific office hours or attend all sales meetings. Independent contractors are responsible for paying their own income and Social Security taxes and receive nothing from brokers that could be construed as an employee benefit, such as health insurance or paid vacation time. As a rule, independent contractors use their own materials and equipment. At the end of the year, the broker reports the amount paid to the independent contractor using a form 1099. The IRS often investigates the independent contractor/employee situation in real estate offices. Under the qualified real estate agent category in the Internal Revenue Code, meeting three requirements can establish an independent contractor status: The individual must have a current real estate license. He or she must have a written contract with the broker that specifies that the salesperson will not be treated as an employee for federal tax purposes. At least 90% of the individual's income as a licensee must be based on sales production and not on the number of hours worked.

A seller accepts an offer to purchase for $2,500 less than list price. The offer is contingent upon the buyer obtaining financing. Ten days after the contract was signed the title commitment is issued, revealing that the seller is unable to deliver marketable title. That same day the buyer's lender calls and notifies the listing broker that the buyer does not qualify for the financing. Has the broker earned a commission?

No because the buyer wasn't able. Even though the seller has breached the contract, since the buyer was not financially able to complete the purchase, the broker has not earned a commission.

Earning Commission

Note that there is a difference between when a commission is earned and when it is paid. A commission is usually earned when the broker has performed in accordance with the terms of the written brokerage service agreement with the client. It is usually paid when the transaction closes. This provision is usually included in the written listing agreement. Unless the written brokerage service agreement specifies otherwise, *the commission is usually earned when:* a completed sales contract has been executed by a ready, willing and able buyer; the contract has been accepted and executed by the seller; and copies of the contract are in the possession of all parties. *To be entitled to a commission, a person must be:* a licensed broker; the procuring cause of the sale and employed by the buyer or seller under a valid contract. In general then, a broker is due a commission if a sale is not consummated because of the client's default.

Special Agent

One authorized by a principal to perform a particular act or transaction, without contemplation of continuity of service as with a general agent Authorized to represent the principal in one specific act or business transaction only under detailed instructions. A real estate broker is typically a special agent. A special power of attorney is another means of authorizing an agent to carry out only a specific act or acts.

Agent

One who is authorized to represent and to act on behalf of another person (called the principal).

Independent Contractor

One who is retained to perform a certain act, but who is subject to the control and direction of another only as to the end result and not as to how he or she performs the act. The critical feature, and what distinguishes and independent contractor from an employee or agent, is the degree of control the employer has over such a person's activities.

Employee

One who works under the supervision and control of an employer. An employee, according to the IRS rules, works regular hours for one employer, and the employer controls the hours worked by the employee. The employer pays the employee's payroll taxes through withholding the taxes from the payroll. For tax purposes, most real estate salespersons qualify as independent contractors.

Stigmatized Properties

Properties that society has branded undesirable because of events that occurred on or near the property.Typically, the stigma is a criminal event such as a homicide, gang-related activity, or a tragedy such as a suicide. Methamphetamine labs are NOT included in the definition of stigmatized properties. Missouri law calls stigmatized properties *"psychologically impacted real property"* and states that disclosure of such stigmas are not required. Furthermore, licensees cannot be sued for failure to disclose that the property was a psychologically impacted real property. Brokers should seek competent legal counsel for guidance before adopting a policy regarding stigmatized properties. Important note:A disclosure that a property's previous owner or occupant had AIDS or was HIV-positive constitutes illegal discrimination against the handicapped under the federal Fair Housing Act and is also a violation of Missouri law.

Dual Agency

Representing both principals to the same transaction. In most states it is illegal for a broker to represent both buyer and seller in the same real estate transaction without written disclosure and consent from both parties. Representing both principals in the same transaction is a breach of the fiduciary duty of loyalty.The agent represents two principals in the same transaction, such as both the buyer and the seller in the same transaction. Dual agency requires equal loyalty to two separate principals at the same time, in the same transaction. Because agency originates with the broker, dual agency arises when the broker is the agent of the buyer and also either the agent or subagent of the seller. *In Missouri, where the practice of dual agency is legal, all parties must give their written permission for dual agency in the written agency agreements (the listing and the buyer agency agreement) for the broker to enter into dual representation, and oral disclosure must be made immediately to both parties upon the happening of the dual representation. Written confirmation of the disclosure must be obtained from the principals before the signing of a contract for the sale and purchase of the property. A more common example of dual agency would be if Michael employed two salespersons, Rachael and Steve. Rachael is the listing salesperson for Spacious Hall and Steve meets and begins representing the buyer, Yvette. Because both Rachael and Steve are associated with Michael's real estate brokerage, Michael may be construed as a dual agent and will have to enter into a disclosed dual agency agreement with the parties.

Tie-in Agreements (also known as tying agreements)

Requirement to buy one product or service on condition that you buy another product or service. Say I am a broker who owns a property that a builder wants to buy. As part of the sale, I require that the builder relist the property with me (list back) when he sells it. Yoegel, John A. (2013-07-09). Real Estate License Exams For Dummies (p. 39). Wiley. Kindle Edition.

Antitrust Laws

State and federal laws designed to maintain and preserve business competition. The Sherman Antitrust Act (1890) is the principal federal statute covering competition. Antitrust situations include price fixing, certain types of boycotts, allocation of customers or markets, restrictions on competition in shopping center leases and certain restraints placed on franchisees by franchisors.

Percolation Test

Testing of the water for possible toxins or excessive levels of bacteria and a to determine if the soil is suitable for a septic system (areas where wells and septic tanks being used)

The Salesperson's Compensation

The amount of compensation a salesperson receives is set by mutual agreement between the broker and the salesperson. A broker may agree to pay a fixed salary or a share of the commissions from transactions originated by a salesperson. In some cases, a salesperson may draw from an account against earned shares of commissions. Some brokers require salespersons to pay all or part of the expenses of advertising listed properties. Some firms have adopted a 100% commission plan (also known as a desk fee plan). Salespersons in these offices pay a monthly service charge to their brokers to cover the costs of office space, telephones and supervision in return for keeping 100% of the commissions from the sales they negotiate. The salesperson pays all advertising and other expenses related to the transactions.

Selling Broker

The broker who procures the buyer.

Customer

The party to a real estate transaction who has not entered into a written agreement for brokerage services with a broker.

The Broker's Compensation

The broker's compensation is specified in the contract with the client. The salesperson's compensation is specified in the contract with his/her broker. The amount of the commission could be a percentage of the sales price, a flat fee, an hourly rate or a combination of these. It could be a percentage with a flat minimum or be based upon a sliding scale, for a higher priced property. The important point is for the broker and the client to agree on the broker's compensation and how it is to be paid before the brokerage relationship is established. In most sales transactions, the commission is a percentage of the sales price and is paid to the listing broker at closing. Note that there is a difference between when a commission is earned and when it is paid. A commission is usually earned when the broker has performed in accordance with the terms of the written brokerage service agreement with the client. It is usually paid when the transaction closes. This provision is usually included in the written listing agreement. Unless the written brokerage service agreement specifies otherwise, the commission is usually earned when: • a completed sales contract has been executed by a ready, willing and able buyer; • the contract has been accepted and executed by the seller; and • copies of the contract are in the possession of all parties. To be entitled to a commission, a person must be: • a licensed broker; • the procuring cause of the sale and employed by the buyer or seller under a valid contract Once a seller has accepted an offer from a *ready, willing and able buyer*, the listing broker is entitled to a commission. A ready, willing and able buyer is one prepared to buy on the seller's terms and ready to take positive steps toward consummation of the transaction.

Client vs Customer

The client is the principal to whom the agent gives advice and counsel. The agent is entrusted with certain confidential information and has *fiduciary responsibilities* to the principal. In contrast, the customer is entitled to factual information and fair and honest dealings as a consumer, but does not receive advice and counsel or confidential information about the principal. *It could be said that the agent works for the client and with the customer.*

Commission

The compensation paid to a real estate broker (usually by the seller) for services rendered in connection with the sale or exchange of real property.

The Residential Real Estate Brokerage Industry

The first report to ever examine the real estate industry with regard to agency relationships.

Express Agency

The principal and agent may enter into a contract or an express agreement in which the parties formally express their intention to establish an agency and state its terms and conditions. The agreement may be either oral or written. An agency relationship between a seller and a broker is generally created by a written employment contract, commonly referred to as a listing agreement, in which the owner promises to pay the broker compensation if the broker produces a signed offer from a ready, willing and able buyer that the seller accepts, or one that exactly matches the listing terms (a mirror-image offer). An express agency relationship between a buyer and a broker is created by a buyer agency agreement. Similar to a listing agreement, in a buyer agency agreement, the buyer agrees to compensate the buyer's broker if the broker successfully finds the property the buyer purchases.

Compensation

The source of compensation does not determine the agency relationship. In other words, an agent does not necessarily represent the party that pays the compensation. In fact, an agency relationship can exist even if no compensation is paid. A buyer's agent can be paid by the seller or in the form of a commission split from the seller's agent. Likewise, a seller's agent can be paid by the buyer or in the form of a commission split from the buyer's agent.

Universal Agent

This agent is a person empowered to do anything the principal could do personally. The universal agent's authority to act on behalf of the principal is virtually unlimited. This type of agency can be created by a general power of attorney, which makes the agent an attorney-in-fact. A real estate broker typically does not have this scope of authority in a real estate transaction.

Law of Agency

This defines the rights and duties of the principal and the agent. It applies to a variety of business transactions. In real estate transactions, the relationships between licensees and their clients are governed and interpreted by contract law and real estate license laws as well as the law of agency. In Missouri the common law of agency has been replaced by statutes.

Buyer Agency Relationship

This relationship established in the same way as any other agency relationship: by contract or agreement. The buyer's agent may receive a flat fee or a share of the commission paid to the seller's agent or both, depending on the terms of the agency agreement.

Agency Relationship

This relationship exists when one person, the *principal* (also called the *client*) has delegated to another, the *agent*, the right to act on his/her behalf in a business transaction and to exercise some degree of discretion while so acting. The relationship must be consensual (both parties must agree to the relationship). Any other parties involved in a transaction are *customers*.

Procuring Cause

To be considered the procuring cause of a sale, the broker must have started or caused a chain of events that, without break in continuity, resulted in the successful sale of the property. According to the National Association of Realtors®, a licensee can claim to be the procuring cause if he/she can show that without his/her efforts, the sale would not have taken place. A broker who causes or completes such an action without a contract or without having been promised payment is a volunteer and may not legally claim compensation. Many other factors can affect a broker's status as procuring cause. For instance, if the salesperson abandons the transaction, he or she may not be able to return and claim to have been the procuring cause. In all cases, the key is determining who really sold the property. Merely showing a property to a buyer may not be sufficient to make a claim of "procuring cause."

Penalties for Violating Antitrust Laws

Under the federal Sherman Antitrust Act, people who fix prices or allocate markets may be subject to a maximum $100,000 fine and three years in prison. For corporations, the penalty can be as high as $1 million. In a civil suit, a person who has suffered a loss because of the antitrust activities of a guilty party may recover triple the value of the actual damages plus attorney's fees and costs.

Qualified real estate agent category in the Internal Revenue Code

Under the qualified real estate agent category in the Internal Revenue Code, meeting three requirements can establish an independent contractor status: The individual must have a current real estate license. He or she must have a written contract with the broker that specifies that the salesperson will not be treated as an employee for federal tax purposes. At least 90% of the individual's income as a licensee must be based on sales production and not on the number of hours worked.

As Is

Words in a contract intended to signify that no guarantees whatsoever are given regarding the subject property and that it is being purchased exactly as it is found. Even though an as-is clause may give some protection to the seller from unknown defects, the clause is inoperative when the seller actively misrepresents the condition of the property.

Designated Agency

is a method of representation in which the designated broker (the broker in charge) of a company appoints affiliated licensees of the company to represent the clients.When a licensee has been appointed to represent a client, only that licensee represents that client.Other licensees in the firm may assist the client as subagents or transaction brokers upon the consent of the client and disclosure to the customer. If a buyer-client is interested in an in-house listing, neither salesperson will be a dual agent.The designated broker may become a dual agent if the broker personally supervises either designated agent or becomes aware of personal or financial information about either client. When a buyer-client is interested in an in-house listing, neither the seller's designated agent nor the buyer's designated agent is required to disclose the possibility of dual agency, as the seller's agent is responsible for looking out for the best interests of the seller and the buyer's agent is responsible for looking out for the best interests of the buyer. The use of designated agency must be authorized in writing by the clients in the written brokerage service agreements and the appointment of designated agents must be made in writing.