Real Estate Agency

Non-Agent

(also referred to as a facilitator, intermediary, transactional broker, transaction coordinator, or contract broker) someone who works with a buyer and a seller (or a landlord and a tenant), assisting one or both parties with the transaction without representing either party's interests. Nonagents are often subject to specific statutory responsibilities. A broker may be considered a nonagent when dealing with a customer (someone other than the person the broker represents).

Customer Level Disclosures

-Enviromental Hazzards -Property Conditions -Stigmatized Properties

Three types of law that agency relationships are based on.

-common law, the rules established by tradition and court decisions; -statutory law, the laws enacted by the legislature; and -administrative law, the rules and regulations created by real estate commissions and departments, as authorized by the legislature.

Undisclosed Dual Agency

A broker may not intend to create a dual agency. It might occur unintentionally or inadvertently. Sometimes the cause is carelessness. Other times, a sales associate does not fully understand the fiduciary responsibilities of agency. Some sales associates lose sight of other responsibilities when they focus intensely on bringing buyers and sellers together. For instance, a sales associate representing the seller might suggest to a buyer that the seller will accept less than the listing price. Or the same sales associate might promise to persuade the seller to accept an offer that is in the buyer's best interests. Giving a buyer any specific advice on how much to offer can lead the buyer to believe that the sales associate represents the buyer's interests and is acting as the buyer's advocate. Any of these actions can create an implied agency with the buyer and violate the duties of loyalty and confidentiality to the principal-seller. Because neither party has been informed of the situation and given the opportunity to seek separate representation, the interests of both are jeopardized. This undisclosed dual agency violates licensing laws. It can result in the rescission of the sales contract, forfeiture of a commission, a lawsuit for damages, and possible license problems.

Listing Agreement

A contract between an owner (as principal) and a real estate professional (as representative of the owner) by which the real estate professional is employed to find a buyer for the owner's real estate on the owner's terms, for which service the owner agrees to pay a commission or other form of compensation. This establishes an expressed agency relationship.

Implied Agreement

A contract under which the agreement of the parties is demonstrated by their acts and conduct. This occurs when the parties act as though they have mutually consented to an agency, even if they have not entered into a formal agency agreement. While neither the real estate professional nor the represented party may have consciously planned to create an agency relationship, they can create one unintentionally, inadvertently, or accidentally by their actions. Even though real estate professionals might be required to disclose their agency status, consumers often find it difficult to understand the complexities of the law of agency. Buyers can easily assume that when they contact a real estate sales associate in order to be shown a property, the real estate sales associate becomes their agent, even though, under the listing contract on the property, the real estate sales associate (through the broker) legally represents the seller. An implied agency with the buyer can result if the words and conduct of the sales associate do not dispel this assumption, which may lead to the creation of an illegal undisclosed dual agency (discussed later). Some states prohibit the creation of agency implied by conduct.

Material Fact

A fact that, should it be known, might change an individual's course of action.

Latent Defect

A hidden or not easily known defect in a property, like a leak or the presence of lead paint.

Special Agent

A person empowered to act on behalf of the principal is one busness transaction

General Agent

A person empowered to do a variety of activities on behalf of the principal is a particular area of business. A broker that serves as a property manager would fall under this category.

UniversalAgent

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. A court appointed guardian, for instance, will have the authority granted by the court, which can include caring for both the person and the property of the guardian's ward—the individual who is the subject of the guardianship. A real estate professional typically does not have this scope of authority in a real estate transaction.

Buyer's Agreement

A principal-agent relationship in which the real estate professional acts on behalf of the buyer, usually as an agent, with fiduciary responsibilities to the buyer.

Real Estate Agent duties with regard to customer related duties. - Third party\not represented.

A real estate professional is responsible for adhering to state and federal consumer protection laws, as well as the ethical requirements imposed by professional associations and state regulators. In addition, the real estate professional's duties to the customer typically include: -reasonable care and skill in performance, -honest and fair dealing, and -disclosure of all facts that the real estate professional knows or should reasonably be expected to know that materially affect the value or desirability of the property.

Buyer's Agent

A real estate professional who is under contract to locate property for a buyer and represent the buyer's interests in a transaction.

Single Agency

Agency relationship in which the agent represents only one party to a transaction. The real estate agent must provide fiduciary common law or statutory duties exclusively to one principal within the transaction (who may be either the buyer or the seller—or the landlord or the tenant). The customer is the party not represented by the agent. The broker cannot represent both the buyer and the seller (or the landlord and the tenant) in the same transaction and remain a single agent. Single agency thus avoids conflicts and results in client-based service and loyalty to only one principal in any transaction. On the other hand, it necessarily limits the broker's client base by ruling out the sale of in-house listings to prospective buyers. Another agency relationship that involves one principal and one agent is the relationship between a real estate broker and a sales associate of that broker. The employing broker is the principal, and the sales associate is authorized to conduct real estate business only as an agent of the employing broker. The sales associate owes the broker the same fiduciary duties that the broker owes to the client—the broker's principal. The sales associate owes those fiduciary duties to the client as well because, as the agent of the broker, the sales associate is the subagent of the client.

Law of agency includes what relationships.

Agent Agency Fiduciary Principal Customer Client Non-Agent

Care

Agents must exercise a reasonable degree of care while transacting the business entrusted to them by principals. Principals expect the agent's skill and expertise in real estate matters to be superior to that of the average person. The most fundamental way in which an agent exercises care is to use that skill and knowledge on a principal's behalf. The agent should know all facts pertinent to the principal's affairs, such as the physical characteristics of the property being transferred and the type of financing being used. If the agent represents the seller, care and skill include helping the seller arrive at an appropriate and realistic listing price, discovering and disclosing facts that affect the seller, and properly presenting, as allowed by law, the contracts and other documents that the seller signs. It also means making reasonable efforts to market the property, such as advertising and holding open houses, and helping the seller evaluate the terms and conditions of offers to purchase. A real estate broker who represents the buyer is expected to help the buyer locate suitable property and evaluate property values and neighborhood and property conditions, and complete offers and counteroffers, as allowed by law, with the buyer's interest in mind. A representative who does not make a reasonable effort to properly represent the interests of the principal may be found negligent by a court of law. The representative is liable to the principal for any loss resulting from the representative's negligence or carelessness.

Designated Agency

Also called assigned agency or appointed agency, is available in some states to accommodate an in-house sale in which two sales associates of the same broker are involved. The broker designates one sales associate to represent the seller and another sales associate to represent the buyer. Thus, a designated agent, or designated representative, is the only sales associate in the company who has a fiduciary responsibility toward the principal. When one sales associate in the company is a designated agent, the other sales associates are free to represent (through the broker) the other party in a transaction. Disclosure of the designated agent status of the sales associates to both parties is required, as is the consent of both parties to the arrangement.

Disclosed Dual Agency

Although a conflict of interest still exists, disclosure is intended to minimize the risk for the broker. The disclosure alerts the principals that they might have to assume greater responsibility for protecting their interests than they would if they had independent representation. Because the duties of disclosure and confidentiality are sometimes limited by mutual agreement, they must be carefully explained to the parties in order to establish informed consent.

Termination of Agency

An agency may be terminated for any of the following reasons: -Completion, performance, or fulfillment of the purpose for which the agency was created -Death or incapacity of either party -Destruction or condemnation of the property -Expiration of the terms of the agency -Mutual agreement by all parties to cancel the contract -Breach by one of the parties -By operation of law, as in bankruptcy of the principal (bankruptcy terminates the agency contract and title to the property transfers to a court-appointed receiver) An agency coupled with an interest cannot be revoked by the principal acting alone, and it is not terminated upon the principal's death. An agency coupled with an interest will occur, for example, when a real estate agent is made a part-owner of a property that is the subject of a transaction. Even though an agency relationship has terminated, the fiduciary responsibilities of the agent, such as the duty of confidentiality, might continue.

Expressed Agency

An agency relationship based on a formal agreement between the parties. Can be written or oral agreement unless written agreement is required by law. The employment agreement of broker and sales associate must be in writing.

Gratuitous Agency

An agency relationship that exists without compensation involved.

Caveat Emptor

Buyer beware - Common law doctrine that came to the United States as a legacy from Britain. This was common practice during the 1950s. Buyers were pretty much ontheir own. Buyers often did not realize that the agent represented the seller's interest. In the 1960 things started to change with the introduction of the MLS service. Brokers began to work together to sell homes. The MLS made this possible. Even though one broker represented the buyer and one represented the seller, both brokers still represented the interests of the seller. While sellers benefited from this arrangement, buyers eventually came to question whether their interests were being protected. By the early 1990s, buyers began to demand that they be represented, too. They came to expect not only accurate, factual information but also objective advice, particularly in the face of increasingly complex real estate transactions. As a result, state laws and regulations (and subsequently, MLS rules) were changed to allow a broker to represent a buyer and share in the commission paid to the seller's broker. Buyers have learned to view the real estate professional as the expert on whom they can rely for guidance, and a large percentage of sales contracts are now written by buyer agents. A real estate broker must comply with the laws and regulations regarding all aspects of a transaction, but an increasing number of brokers are choosing to represent buyers exclusively, just as some brokers prefer to represent sellers. In any case, brokers also must decide how they will cooperate with other brokers, in compliance with the rules of the MLS. The relationship of a real estate broker and consumer may not be an agency relationship, and other forms of representation that are recognized by state laws will be discussed here. Even as the elements of real estate practice change, however, the underlying assumptions that govern an agency relationship remain intact.

What are Fiduciary responsbilities

Care Obedience Loyalty Disclosure Accounting Confidentiality

Confidentiality

Confidentiality is a key element of fiduciary duties. An agent may not disclose the principal's personal information—for example, the principal's financial condition. If the principal is the seller, the agent may not reveal such things as willingness to accept less than the listing price or urgency to sell, unless the principal has authorized the disclosure, and often the authorization must be in writing. If the principal is the buyer, the agent may not disclose the buyer's willingness to pay a higher price, the buyer's tight moving schedule, or other buyer facts that might affect the principal's bargaining position. The information that must be kept confidential can change if the business relationship changes, such as when a seller's agent becomes a disclosed dual agent, because the broker is now also representing the buyer. Depending upon state law, the duty of confidentiality could terminate on conclusion of the agency relationship, or it could extend for a number of years, or forever. Under the NAR Code of Ethics, the duty of confidentiality does not expire. Anything a REALTOR® learns about a client that can be considered confidential must remain confidential forever. Check your state's laws for guidance in dealing with confidentiality issues.

Enviriomental Hazzards

Disclosure of environmental health hazards, which can render properties unusable for the buyer's intended purpose, may be required. For instance, federal law requires the disclosure of lead-based paint hazards. Frequently, the buyer or the buyer's mortgage lender requests inspections or tests to determine the presence or level of risk. Real estate professionals are encouraged to obtain advice from state and local authorities responsible for environmental regulation whenever the following conditions might be present: toxic-waste dumping; underground storage tanks; contaminated soil or water; nearby chemical or nuclear facilities; and health hazards such as radon, asbestos, and lead paint.

Puffing

Exaggerated or superlative comments or opinions with regards to a property. While puffing is legal, real estate professionals must ensure that none of their statements can be interpreted as fraudulent. For REALTORS®, puffing is considered unethical even if it is legal.

Non-Agent

Helps both the buyer and the seller with paperwork and formalities in transferring ownership of real property, but who is not an agent of either party. Also called a Transaction Broker. Helps buyers and seller with the paperwork and formalities of transferring property ownership. The nonagent is expected to treat all parties honestly and competently, to locate qualified buyers or suitable properties, to help the parties arrive at mutually acceptable terms without acting on behalf of either side, and to assist in the closing of the transaction. The nonagent is equally responsible to both parties and must disclose known defects in a property; however, the nonagent may not negotiate on behalf of either the buyer or the seller and must not disclose confidential information to either party. The buyer and the seller negotiate the sale without the services of the real estate agent(s), though one or both parties may be represented by an attorney during that process.

Implied Agency

If the actions of the parties imply that they have mutually consented to an agency relationship, an implied agency relationship is formed.

Property Condition

In residential transactions involving property of up to four units, the seller typically has a duty to disclose any known defects that threaten structural soundness or personal safety. A latent defect is a hidden structural defect that would not be discovered by ordinary inspection. Buyers may cancel the sales contract or receive damages when a seller fails to reveal known latent defects. The courts also have decided in favor of the buyer when the seller neglected to reveal violations of zoning or building codes. Increasingly, however, there is a growing trend of not only the right but the responsibility of the buyer to discover any material problems with the property. Some states allow the seller to provide a nondisclosure statement to the buyer that places the burden of discovering any adverse property conditions on the buyer. In addition to the seller's duty in most states to disclose known latent defects, in some states, the agent has an independent duty to conduct a reasonably competent and diligent inspection of the property. It is the real estate professional's duty to discover any material facts that may affect the property's value or desirability, whether or not they are known to or disclosed by the seller. Any such material facts discovered by the real estate professional must be disclosed to prospective buyers. If the real estate professional should have known about a substantial defect that is detected later by the buyer, the real estate professional may be liable to the buyer for any damages resulting from that defect. A broker knew that a house had been built on a landfill. A few days after the house was listed, one of the broker's salespeople noticed that the living room floor was uneven and sagging in places. In some states, both the broker and the salesperson have a duty to conduct further investigations into the structural soundness of the property. (See Easton v. Strassburger, 152 Cal. App. 3d 90, a 1984 California case.) In other states, no such duty exists, but the broker and the salesperson would have the duty of discussing the issue with the seller and advising the buyer to have an inspection performed. They cannot simply ignore the problem or place throw rugs over particularly bad spots and hope buyers won't look underneath. If the seller refuses to disclose the problem, then the broker should refuse the listing.

Disclosure

It is the agent's duty to keep the principal informed of all facts or information that might affect a transaction. The duty of disclosure includes relevant information or material facts that the agent knows or in some cases what the agent should have known. The real estate agent is obligated to discover facts that a reasonable person would feel are important in choosing a course of action, regardless of whether those facts are favorable or unfavorable to the principal's position. The agent may be held liable for damages for failing to disclose such information. Depending on state law, information that must be disclosed could include -the identity of prospective purchasers, which may include any relationships the purchasers might have with the agent (such as when the agent or a relative of the agent is a purchaser); -the purchaser's ability to complete the sale or offer a higher price; -any interest or prospective interest the agent has in the buyer or the buyer's business (such as the broker's agreement to manage the property after it is purchased); and -an incorrect market value of the property. A seller's real estate agent is also expected (and required under many states' laws) to disclose information about known material defects in the property to prospective buyers. This may appear to violate the agent's duty of loyalty to the seller, but this requirement falls under the broader duty to serve the general public and can protect the agent from claims of misrepresentation. In turn, the buyer's agent must disclose deficiencies of a property and the sales contract provisions and financing that may affect the buyer's decision to purchase. The buyer's agent would suggest the lowest price the buyer should pay based on comparable values, regardless of the listing price. If known, the agent would also disclose how long a property has been listed and why the owner is selling, because such information would affect the buyer's ability to negotiate the lowest purchase price. If the agent represents the seller, of course, disclosure of any of this information without the seller's permission would violate the agent's fiduciary duty to the seller.

Negligent Misrepresentation

Occurs when the real estate professional should have known that a statement about a material fact was false. A real estate professional's lack of awareness of an issue is no excuse. A misrepresentation due to the professional's carelessness will make the professional culpable (subject to liability). If the buyer relies on the real estate professional's statement, the professional will be liable for any damages that result. Similarly, a real estate professional who accidentally fails to perform some act—for instance, forgetting to deliver a counteroffer—may be liable for damages that result from such a negligent omission. Simple negligence can result in an accidental misrepresentation and, while some damages may result, they may be covered by the real estate professional's errors and omissions insurance.

Fiduciary

One in whom trust and confidence is placed; a reference to a real estate professional employed under the terms of a listing contract or buyer representation agreement.

Agent

One who acts or has the power to act for another. A fiduciary relationship is created under the law of agency when a property owner executes a listing agreement or management contract authorizing a licensed real estate broker to be his or her agent. A prospective property buyer may authorize a real estate broker to act as the buyer's agent to find a suitable property. The sales associates of a real estate broker act as agents (representatives) of the broker. In a real estate transaction, a firm's broker may be the agent of a client and will share this responsibility with the sales associates who work for the firm. As agents of the broker the sales associates thus have the same relationship to a client of the firm that the broker does. If the broker is an agent of a seller, for instance, a sales associate also acts as agent of the seller unless some other provision is made.

Disclosure of Agency

Real estate professionals are required to disclose the parties they represent. Understanding the scope of the service a party can expect from the agent allows consumers to make an informed decision about whether to seek their own representation. Mandatory agency disclosure laws now exist in every state. These laws stipulate when, how, and to whom disclosures must be made. They may, for instance, dictate that a particular type of written form be used. The laws might state what information a real estate professional must provide to gain informed consent where disclosed dual agency is permitted. The laws might require that all agency alternatives be explained, including the brokerage firm's policies regarding the firm's services. Frequently, printed brochures outlining agency alternatives are available to a firm's clients and customers. Whether or not the law requires it, real estate professionals should explain to both buyers and sellers what agency alternatives exist. Good business practice is to make the disclosure of agency before any confidential information is disclosed about an individual's motivation or financial situation.

Dual Agency

Representing both parties to a transaction. This is unethical unless both partiDual agency requires equal loyalty to two different principals at the same time—a high burden that means neither principal has the full, undivided loyalty of the agent. Dual agency arises, for example, when a real estate broker is the agent of both the seller and the buyer. The broker's sales associates, as agents of the broker, also have fiduciary or statutory responsibilities to the same principals. The challenge is to fulfill these fiduciary obligations to one principal without compromising the interests of the other. While practical methods of ensuring fairness and equal representation may exist, it should be noted that a dual agent can never fully represent either party's interests because the duty of undivided loyalty cannot be shown to both principals at the same time. Similarly, it is impossible to maintain both confidentiality and full disclosure to parties whose interests are in oppositiones agree to it, and it is illegal in some states.

Stigmatized Properties

Stigmatized properties are those that society has found undesirable because of events that occurred there or because of proximity of the property to a known nuisance. A common stigma is a criminal event, such as a homicide, illegal drug manufacturing, gang-related activity, or a suicide. Properties have even been stigmatized by rumors that they are haunted. Because of the potential liability to a real estate professional for inadequately researching and disclosing material facts concerning a property's condition, real estate professionals should be fully aware of any relevant state laws. The real estate professional's responsibility may be difficult to define because the issue is not a physical defect but merely a perception that a property is undesirable. Many states provide greater statutory direction to real estate professionals by identifying stigmas that are not considered material facts and that therefore do not require disclosure. Federal law may also provide guidance.

Megan's Law

The Sex Offender's Registry. Megan's Law affects a real estate professional's duty of disclosure. In accordance with state law, a real estate professional may need to request that a customer sign a form that includes information on where the customer may obtain information about the sex offender registry. Depending on the state, a real estate professional may be required to disclose information regarding a released offender if the real estate professional is aware that officials have informed individuals, groups, or the public that a sex offender resides in a particular area. Megan's Law, in effect, creates another category of stigmatized property.

Accounting

The agent must be able to report the status of all funds received from or on behalf of the principal. Most state laws require that a real estate professional give accurate copies of all documents to all affected parties and keep copies on file for a specified period. Most license laws also require monies to be deposited into an escrow account immediately, or within a specified time. Commingling client monies with personal or general business funds is strictly illegal. Conversion is the illegal use of such entrusted money.

Single Agency Relationship

The agent represents only one of the parties to a transaction, and there is a distinction between the level of services that the agent provides to the client the agent represents and those services that the agent provides to the other party, who is the 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 (discussed in greater detail later) to the principal. The client can expect full disclosure of all relevant information learned by the agent. 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 have an expectation that information disclosed to the agent will remain confidential. The agent works for the principal and with the customer. This means that the agent supports and defends the principal's interests, not the customer's.

Loyalty

The duty of loyalty requires that the agent place the principal's interests above those of all others, including the agent's own self-interest. The agent must be particularly sensitive to any possible conflicts of interest. Because the agent may not act out of self-interest, the negotiation of a sales contract must be conducted without regard to how much the agent will earn in commission. All states forbid agents to buy property listed with them for their own accounts or for accounts in which they have a personal interest without first disclosing that interest and receiving the principal's consent. Neither real estate brokers nor real estate sales associates may sell property in which they have a personal interest without informing the purchaser of that interest.

Obedience

The fiduciary relationship obligates an agent to act in good faith at all times, obeying the principal's lawful instructions in accordance with the contract. That obedience is not absolute, however. The agent may not obey instructions that are unlawful or unethical. On the other hand, an agent who exceeds the authority assigned in the contract will be liable for any losses that the principal suffers as a result.

Principal

The individual who hires the agent and delegates to that agent the responsibility of representing the principal's interests. In a real estate transaction in which an agency relationship is established, the principal is the buyer or the seller or the landlord or the tenant. The broker is the principal in dealings with sales associates. The relationship between the principal and agent must be consensual—that is, the principal delegates authority, and the agent consents to act. The parties must agree to form the relationship. The principal's primary duties are to comply with the agency agreement and cooperate with the reasonable expectations of the agent—that is, the principal must not hinder the agent and must deal with the agent in good faith. The principal also must compensate the agent according to the terms of the agency agreement.

Fraud

The intentional misrepresentation of a material fact in such a way as to harm or take advantage of another person. That includes not only making false statements about a property but also intentionally concealing or failing to disclose important facts when there is a duty to disclose.

Client

The principal in a real estate transaction for whom a real estate broker acts as agent. The term client is also used when a broker represents someone in a relationship other than an agency.

Agency

The relationship between a principal and an agent wherein the agent is authorized to represent the principal in certain transactions.

Customer

The third party or nonrepresented consumer who is not a principal but for whom some level of service may be provided and who is entitled to fairness and honesty. The customer may be represented by a separate agent.