Chapter 7

Client

1. A client is a principal in an agency situation; this is the person to whom the agent gives counsel and advice. 2. Most states require that agreements creating the agency relationship must be in writing.

Customers

1. A customer is a party for whom a service is provided in the course of the agents execution of his duties to the principal; the customer is not a client. 2. Customers are those receiving brokerage services by the agent, but without having entered into an agency agreement. 3. Under common law, the agent would still owe a customer the duty to be honest and fair in his/her dealings with the customer, or such duties as may be prescribed in state law, such as confidentiality.

General Agent

1. A general agent is one authorized by another to represent that party's interest in a given range of matters. 2. A property manager could be an example of a general agent, if authorized to represent a principal in all matters concerning one area of the principal's interest.

Non-Agents

1. A non-agent if allowed under state law, assists the parties without having a principal/ agent or client relationship with either of the parties. 2. A non-agent in Real Estate could be a transactional broker, facilitator, or intermediary, and in some states could assist both the buyer and the seller in the transaction without having an agency relationship with either party. 3. The non-agent, as all real estate professionals and agent, is expected to treat all parties honestly, competently, and equality, and would not disclose confidential information to either party and would not negotiate or advocate for either party in the transaction.

Universal Agent

1. A person who is given authority to represent the principal with virtually unlimited authority. 2. A power of attorney is generally required to create a universal agent. 3. A real estate broker typically does not have this scope of authority as an agent.

Special Agent

1. A special agent is authorized to represent the principal in a transaction; a real estate brokerage with a listing contract is typically considered a special agent. 2. A broker is a special agent when the broker is employed by the buyer to assist in the acquisition of a given property. 3. As a special agent, the real estate broker is not authorized to bond the principal (i.e., not authorized to sell the principal's property or bind the buyer in a purchase contract.

Subagent

1. A subagent is an agent of the agent. 2. The allowance of sub-agency typically requires the principal's consent. 3.If authorized by the principal, the agent may delegate some of the agent's authority or responsibility to another agent (subagent) to assist the agent in carrying out the agent's services to the seller. 4. A sub-agency relationship in real estate brokerage may be created through an offer of cooperation made in the Multiple-Listing Services (MLS), where other brokers agree to assist the listing brokerage in locating a ready, willing, and able buyer for the listing broker's seller's property. Note that although MLS rules provide for such sub-agency, mere membership in the MLS does not by itself create sub-agency. 5. Depending on state laws, cooperating agents would owe their duties to the agent creating the sub-agency, and ultimately to the principal.

Blind Ads

1. Ads that do not identify the broker as the advertiser; broker is generally prohibited from placing blind ads.

Express Agency

1. An express agency relationship is created verbally or in writing by a formal agreement or contract. Under common law, state laws, such as Statute of Frauds, require the representation agreement be in writing to be enforceable so a commission can be collected. 2. A written listing contract between a seller and a broker is an example of an express listing contract; The seller is authorizing the brokerage to find a buyer for his/her property. 3. A written buyer representation contract is also an example of an express contract; a buyer is authorizing the broker to find a property that meets his/her needs, and typically, to negotiate on behalf of the buyer in that transaction.

Implied Agency

1. The implied agency relationship may be created when the actions indicate that they have mutually consented to an agency relationship. 2. The creation of implied agency may be unintentional or inadvertent; FOR EXAMPLE, the actions of a subagent of the listing broker in dealing with the potential buyer could cause the buyer to believe that the subagent is treating the buyer as a client, thus creating implied agency. This typically is a violation of license or other state law.

"COLDAC" (C-O-L)

1. Care - Agents must exercise a reasonable degree of care. 2. Obedience - Agents must act in good faith and obey legal instructions by the client/principal related to the service being provided by the agents. Agents cannot obey illegal instructions, such as being told by the landlord to refuse rental to a prospective tenant because the prospective tenant is a member of a protected class, or such as refusing to disclose material adverse facts at the sellers request, when such disclosures are required by law. 3. Loyalty - Agents are required to place the principals interest over a non-principal interests, including their own self-interest. The agent is an advocate for the principal.

Nature of Agency Relationship

1. Common law of agency sets up the fiduciary obligations for all agents not just Real Estate professionals. - This set of laws sets the basic fundamentals. 2. State laws define how agency or non-agency relationships will be implemented. - FOR EXAMPLE, common law defines dual or implied agency, but state laws may disallow one or both of these to be practiced.

Designated Agent

1. Designated Agency, if permitted under state law, allows for two different agents from the same brokerage to each represent a separate buyer-client, and a separate seller-client in the same transaction. 2. In the absence of designated agency, or its equivalent, the representation of a client on each side of a given transaction would be prohibited, or would be permissible under a dual agency. 3. Both dual agency and designated agency require disclosure and consent if the parties involved.

Responsibilities of Agent to Customers and Third Parties

1. Disclosure - Contrasted to traditional common law, most states now define the duties owed by agents to all parties in the transaction. FOR EXAMPLE, most states now require that agents disclose adverse material facts known to the agent that may not be known by the various parties. The duties owed to third parties, if any, would require the agent to conduct him/herself consistently with the agency representation engaged in by the agent. 2. Honesty - Agents are responsible for dealing fairly and honestly with customers and/or third parties, within the scope of the agency relationship. 3. Integrity - Agents must be honest and ethical and not make false or misleading statements about a property being sold or being considered by a customer.

Termination of Agency

1. Exipiration of the agency agreement according to its own terms. 2. Completion/Performance - Achievement of the objective for which the agency was created. 3. Termination by force of law, if applicable. 4. Destruction of property to be sold and/or death of the principal. 5. Death of the principal or agent (brokerage firm) - Not of the salesperson or broker associate. 6. Mutual Agreement - Agent and principal agree to extension or termination of the contract.

Fiduciary Responsibilities

1. Fiduciary is common law term that describes a relationship of trust and confidence between principal and agent. 2. Brokers often are referred to as fiduciaries, but the actual duties of a broker to a client in any state will be set by law and the contract of employment, effectively modifying or supplanting what would be traditional common law duties.

Disclosure When Acting as Principal/Other Conflict of Interests

1. Full disclosure of all parties, and consent, lessen the likelihood of a conflict of interest problem.

Duties of Traditional Common Law Agency

1. Historically, real estate agents represented only the sellers of real estate, and under traditional common law, all duties would have been owed to the seller. 2. Sub-Agency, as traditionally applied, meant that even though "working with" the buyer, the subagent owed duties only to the seller (as a subagent of the listing broker). 3. The development if buyer agency, and designated agency, along with non-agency relationships, allowed real estate professionals to represent the buyers as principal/clients. 4. Most states have now implemented laws allowing client/principal relationships on both sides of a given transaction provided the disclosure and consent requirements are met. 5. Dual Agency, if permitted by state law, could arise by express or implied agency, but to be lawfully employed, requires disclosure and consent from all parties. 6. The National Association of REALTORS Code of Ethics long ago imposed ethics duties of fairness and honesty to all parties and since then, many states have required licensees to observe various duties owed to all parties to a given transaction, and to provide timely disclosure of these duties to all parties.

Commission Sharing Agreements

1. Real Estate brokers may share a commission only with their own salespeople or other licensed brokers.

Agency

1. Refers to the nature of the relationship between the agent and the parties to whom brokerage services are provided; traditional agency involves a principal and an agent.

Broker Recourse if Seller Refuses to Pay Commission

1. Some states allow brokers to sue for commission and place lien on property if not paid.

Accounting for Money

1. The broker may be required to deposit all funds entrusted to him/her in a trust account, or do what all parties agree should be done with the funds, and may not comingle these funds with the broker's own funds.

Parts of Agency (Part 1)

1. The brokerage firm is considered to be an agent who consents to represent the interest of another party (the principal) who delegates authority to him/her. 2. The principal is the party who delegates to the agent the authority to represent the principal's interest in the transaction. 3. Fiduciary is the common law term typically used to describe the nature of the agency relationship as that of trust and confidence between principal and agent. - The broker (agent) is often referred to as a fiduciary in common law, although the duties owed by the broker in actual practice depends upon the specifics of any agency agreement in state law; common law refers to legal principals passed down on court decisions. - Fiduciary obligations typically include care, obedience, accounting, confidentiality, loyalty and disclosure.

Parts of Agency (Part 2)

1. Under an agency agreement, the principal is the client for whom the agent has agreed to provide a service, typically assistance in a transaction such as the purchase or sale of a home. 2. The principal, or client agrees to cooperate with the agent, compensate the agent, and not hinder the agents ability to provide services. A broker's commission is negotiable. 3. A customer is a person, not under an agency agreement, for whom brokerage services may be provided. 4. The broker may be engaged in a variety of agency relationships to parties in a given transaction, depending on state law.

Duties to a Client/Principal

1. Under common law of agency, the brokerage owed a fiduciary duty to the principal whether the seller, buyer, lessor and lessee of property. 2. Generally, am agent's duties to the principal may be referred to as "COLDAC" (Care, Obedience, Loyalty, Disclosure, Accounting, Confidentiality.)

"COLDAC" (D-A-C)

4. Disclosure - Agents are required to disclose to the client or principal any material facts that might affect the clients decision. Most states now require licensees to disclose adverse material facts to all parties. An adverse material fact is generally defined as a fact that the buyer doesn't know about and can't discover through a reasonably vigilant observation, such as damage from fire or significant water damage. 5. Accounting - Agents are required to report the status of all funds received from or on behalf of a principal and typically, state laws require agents to maintain accurate copies of documents created for the principal in any given transaction. 6. Confidentiality - An agent owes the principal confidentiality. FOR EXAMPLE, a listing agent could not disclose that the client or principal's willingness to accept a less-than-listing price, or to disclose that a buyer client is under a tight moving schedule (if it would undermine the bargaining position.) unless authorized by the principal. - However as noted, most states now impose confidentiality duties on brokers in all agency capacities. A key element traditionally is confidentiality in all brokerage agency relationships.

What is Brokerage?

The brokerage business has typically been one of agency; the brokerage firm is authorized by the principal (Seller, Buyer, Tenant, or Landlord) to act as his or her agent.