Chapter 4 - Agency Law

Number 1: Full Performance

- As a real estate salesperson, the very best way to end an agency relationship is with full performance or completion of the transaction - Once the closing is completed and the job was well done, then the house has been sold (or bought), the apartment rented or the commercial space leased and you've been paid the commission. The agency relationship is over and everyone walks away happy.

"O".....Obedience

- As an agent, you must obey all legal instructions given by your client and do so in a prompt and effi cient manner - Obedience to a seller versus a buyer is a bit different. • The Seller's Agent has to obey the lawful instruction of the Seller, and is not required to fulfi ll requests from the Buyer. • An Exclusive Buyer's Agent has to obey the lawful instruction of the Buyer, and is not required to fulfi ll requests from the Seller

Ostensible Agency

- A specific kind of implied agency, but instead of the principal or agent believing that an agency relationship exists, it is a third party who believes the agency relationship exists - Ex) If a property owner knows that you've been driving by their property and mentioning that it is for sale at a particular price to potential buyers, then it would be reasonable for those potential buyers to believe that you are acting as an agent for the property owner. If there is a court case that arises due to this, then the existence of an actual agency relationship can be enforced by the court.

Commission

- An agent's compensation - Most often, the agent is compensated based on a percentage of the total closing costs, whether they are sales, rentals or leases. - However, in the world of real estate, there is no standard commission. That is always a point of negotiation between a principal and their agent. - The exact terms of what the commission is will be stated in the contract that lays out the agency relationship, either the listing contract or buyer representation agreement. - Sometimes commission can be a flat fee EX) In the case of a sale, where a broker has negotiated a commission of 5.5% on a house that sells for $250,000, you would fi nd the full price of the commission by multiplying the selling price by the percent. In other words, 250,000 times 0.055 equals 13,750. The full commission, before factoring any splits to a buyer's broker or agents who have worked on the deal is $13,750.

"R".....Reasonable Care and Diligence

- As an agent, you are expected and required to use reasonable care and diligence in pursuing your client's goals. The standard of care assumes that, as a licensed real estate broker, you are a competent professional, knowledgeable in your fi eld. By holding a real estate license, you are considered to have expertise above a non-licensed person. - Despite this, a broker is not expected to know details that require a deep understanding of subject matters beyond their licensing requirements. The broker should acknowledge this and refer the principal to the appropriate expert, such as a lawyer, accountants, engineers or other professionals: • The seller's Agents are expected to prepare themselves through education, to competently represent the Seller in all matters. • An exclusive Buyer's Agents are expected to prepare themselves through education as to competently stand up for the buyer at all times - EX) you are the listing agent for Ivan Beeker, who has recently discovered there is a lien on his property that must be resolved, prior to listing the property for sale. So in this case you refer Ivan to a property attorney and municipal authorities who can help him clear the lien quickly.

"D".....Disclosure

- As an agent, you must tell your client everything that pertains to the transaction that impacts them as part of the agency relationship. - This includes facts that impact property value or marketability. - It also includes knowledge gained regarding the other party's bargaining position, presenting all offers on the home, information about a buyer's willingness to make a better off er and intentions to divide or sell the property for a higher profit. - • The Seller's Agent has to divulge any known material defects in the property. - However, they must NOT divulge information about traffic problems, poor schools, crime rates and declining property values in the area or any other details that make the property less appealing to a buyer. - • An Exclusive Buyer's Agent must disclose everything they know about the seller, including the motivations to sell and any opportunity for a faster sale. - They must tell the buyer anything they find out about traffic problems, poor schools, crime rates and declining property values in the area. They must tell the buyer anything that might make the area less desirable to a buyer.

Express agency

- Clear-cut version of the agency relationship; it's when the agency relationship has been created by oral or written agreement between the principal and the agent. - EX: When a broker and a seller both sign a listing agreement, they have entered into an express agency relationship in which the broker is the agent and the seller is the principal. The listing agreement serves as a contract that clearly lays out the agency relationship, and will even put an end date on how long that relationship exists.

Number 2: Destruction or Condemnation of the Property

- Due to an accident, an earthquake or even negligence, sometimes a property is destroyed or condemned. - If you're the agent representing the principal for a property that no longer exists or is severely damaged, then that will be enough to terminate the agency.

Why Fiduciary Law is Good for Business?

- It is the fiduciary responsibility that raises client confidence. You can honestly tell them you are bound by law to represent their interests loyally and fully. - You can also explain to the client that this reduces the likelihood they will be taken advantage of by unscrupulous professionals.

Principal

- Often called a client in real estate - Might be the buyer or seller who the agent is representing - Authorizes the agent to represent them to other people in working on a business transaction.

Agent

- One who acts for and with authority from another called the principal. - Broker can be an agent as they have the best intrest in mind for the principal

The most common type of agency that allows a brokerage to sell a client's property is called:

- Single Agency - In this instance, a broker will sign a listing agreement with the client, for this example, let's use a property owner. - The listing agreement will clearly lay out all of the responsibilities that the broker takes on, as a special agent, in agreeing to carry out these property agreements. - And as a single agent, the broker also agrees that they will only act as the agent for the client, they will not act as an agent for any other competing interest. Their fi rst loyalty will always remain undivided with the property owner.

"L".....Loyalty

- This duty requires a real estate broker to act only in the best interests of the client, excluding even the broker's own interest. -• The Seller's Agent is required to do everything in their power to further the interest of the Seller. -• The Exclusive Buyer's Agent is required to do everything possible to further the interests of the Buyer

Dual Agency

- Where an agent/subagent serves both the buyer and seller - Dual agency must be fully disclosed to all parties! - Most often, the disclosure will require that both principals give written consent that the brokerage will represent the two principals, making sure that both principals are fully aware of the arrangement - A broker will often assign two different sub-agents in the office to each principal. These sub-agents are known as designated agents - Undisclosed dual agency, where a broker has an agency relationship with two competing principals, but does not inform them of this is always illegal in every state.

General Agent

- Will be granted full authority over a single property - Common role seen in the real estate industry - Property Manager is a common position for this role * Ability to conduct law abiding contracts with tenants in behafe of the principal - If carrying out illegal activity to benefit the principal, without the principal's knowledge, for example illegally evicting a non-paying tenant, then the principal, or property owner might still be held liable.

"A".....Accounting

- You are obligated to "account for", or answer for, any property or money that your client has entrusted to you. - This includes money, deeds, and any other documents given to you that relate to real estate transactions in which you represent them - For example, you are the listing agent and the client has given you a deposit for marketing expenses in the sale of their home. You are expected to deposit this money into a separate account and to be able to account for its use.

"C".....Confidentiality

- You are required to protect your principal's confi dences and secrets, unless it is unlawful to do so. If you know anything that can compromise your client's bargaining position, you have to keep it to yourself and not share it with the other party to the transaction. - Here is how that responsibility is diff erent when you represent a buyer versus a seller: • If you represent a seller you cannot tell a buyer that the seller must sell a property below the listed price. • On the other hand, if you represent a buyer you cannot tell the buyer that your client is willing to pay more than the off er price presented. - An exception to this rule is if the principal gives the agent permission to disclose certain confi dential information

Number 3: Expiration of the Listing Contract

- Any written contract will list an end date. And while the principal and agent can agree to extend that time, once the listing contract or buyer representation agreement has expired, then the agency relationship is offi cially over

Fiduciary Duties

- The legal and ethical responsibilities an agent owes to their principal - Bound by certain legal and ethical obligations, always act in the best interest of the client, as long as that does not mean breaking the law or acting unethically toward another party in the transaction.

Number 5: Breach of Contract

- When one party breaches the contract or; - Sometimes only one party wants to exit an agency relationship while the other wishes to stay. If the party who wants to terminate the relationship can show that the other party has breached the terms of the contract, then they can have the relationship brought to a close.

OLD CAR - acronym used for the fiduciary duties an agent owes their principal:

- "O" stands for Obedience - "L" stands for Loyalty - "D" stands for Disclosure - "C" stands for Confidentiality - "A" stands for Accounting - "R" stands for Reasonable care

Agency Relationship

- A relationship be established based on implication, and making sure, in writing, that the customer understands that they do not have the benefit of this relationship; this can be protection in the event of a lawsuit. - It's also worth mentioning that some states do allow for dual agency, where a single person is allowed to serve the interests of both a buyer and seller.

Implied Agency

- An agency relationship that is created by the actions of the principal and the agent, rather than through any stated agreement that they may have. - It is implied agency that can arise accidentally, and it is the kind of relationship which only one party, the principal or the agent, might believe exists, while the other is unaware of there being any agency relationship there. - In this case an agent cannot fully deliever their service and a principal that did not acknowledge the agency relationship, will not believe that money is owed if the agent provided service.

Number 4: Mutual Agreement of the Parties

- Both parties mutially agree to legally end the agreement. officially terminating the agency

Examples of implied agency relationship

- EX 1) If a friend or acquaintance asks you for some advice in marketing their property you might want to just help them out. You understand that in order to fully market the property there's a certain protocol you go through, one that begins with the signing of a listing agreement. But your friend might believe that you are now responsible for selling the property, and liable for any advice that you give. - EX 2) Conversely, when your friend asks for help, you might believe they're engaging your services as the selling agent. You might diligently market the property, fi nd a buyer, and while your friend gladly accepts all of your "help," at closing they may not feel like they owe you any sort of commission.

Sub-agency

- Ex: a real estate salesperson or associate broker working under a sponsoring broker. - the salesperson or associate broker will be tasked with also fulfilling that agreement in the same way that the broker would, to serve the best interests of the principal.

Universal Agent

- Has full authority over any activity related to the principal. - One person has signed a piece of paper that has bestowed another person with the legal right to act fully in all of their affairs - Even has the right to make medical decisions for the principal (Very rare, but often times it is a relative that is granted these powers)

The Third Party

- In real estate, we usually call this "the customer" - If the principal is the seller of the house, then the customers are any potential buyers, including the person who ends up buying the home

Number 7: Death or Incapacity of Either Party

- In the cases of death or incapacity by either party to an agency relationship, the relationship is legally terminated.

Buyer Representation Agreement

- It establishes the express agency relationship between the broker as the agent and the buyer as the principal. - The important legal consequences of agency relationships, it's important to know how you may terminate an agency relationship

How does a listing contract establish an express agency?

- It lays out what the broker, as a special agent, will do for the seller. - All of the agent's responsibilities and expectations in representing the principal will be clearly stated, and the monetary compensation that the principal will owe the agent upon successful completion of a sale is stated. - There will also be an end date to a listing agreement which would cause a termination of the agency relationship unless there is a sale or extension, and there may be additional conditional reasons that would terminate the relationship included in the listing.

Special agent

- Most common role for a real estate agent or broker - One who is only granted limited authority to act on behalf of the principal - Will only be authorized to act on behalf of the principal when conducting very specific business transactions and these will most likely all be clearly laid out in a listing contract signed by both the agent and the principal - If business is conducted that is not covered by the scope of that contract, even if it is to benefit the principal, they are no longer acting as the principal's agent and are solely liable for any damage or illegal activity that might be associated with their activity - EX: Most listing contracts will authorize the special agent to conduct advertising to market the property. All of the business which a special agent may perform on behalf of their principal should be spelled out in the contract that begins the offi cial business transaction between a real estate broker and their client

Agency

- The relationship between principal and the principal's agent, which arises out of a contract, either expressed or implied, written or oral, wherein the agent is employed by the principal to do certain acts dealing with a third party

Subagent

- The subagent is always representing the best interests of the principal (or client), just as is the agent (or broker) - the real estate salesperson are the most common subagent in the real estate agency relationship - You are always working first and foremost for the principal, and not for the agent/broker.

Number 6: Operation of Law

- There could be an operation of law which supersedes an agency relationship. - Perhaps a property is seized as a tax asset by the IRS. In those instances, any agency relationship regarding that property will be nullifed.

The Pennsylvania Unfair Trade Practices and Consumer Protection Law

- • Bait-and-switch schemes, where an advertisement lists one property, but then you show them another. - Deceptive trade practice laws prohibit false advertising as well. For example: • Deceptive representations of geographic origin (made in USA, for example) in connection with goods or services. • Representing goods as "new" or "original" if the product or home is really deteriorated, significantly altered, reconditioned or structurally unsound. • Advertising goods or services with no intention to sell • Failing to fulfill the obligation of a guarantee or warranty given that the buyer for goods or services purchased via a contract.

There are seven main ways in which an agency relationship is terminated.

1): Full Performance 2): Destruction or Condemnation of the Property 3): Expiration of the Listing Contract 4): Mutual Agreement of the Parties 5): Breach of Contract 6): Operation of Law 7): Death or Incapacity of Either Party