real estate express

Accounting

Accounting refers to the custodial care and record keeping of all money handled on behalf of the principal. We will talk in more detail about escrow accounts in a later chapter, but for now we will say that all funds must be deposited into special escrow or trust accounts and can never be mixed with the agent's personal funds or the brokerage company funds. This is called commingling and it is illegal. It is crucial that an agent be extremely careful when dealing with the transfer of funds on behalf of their client. Negligence in this area could have financial consequences for the agent.

Express Agency

An actual agency created by the written or spoken words of the principal authorizing the agent to act.

Disclosure

An agent must be sure to provide the proper disclosure of material information to the principal in any situation where it is necessary. Failure to provide proper disclosure, even unintentionally, could be considered fraudulent and action could be taken against the agent. We will discuss disclosures later in the course.

Implied Agency

An implied agency may occur unwittingly or unknowingly. It arises from actions, not words. In the first paragraph of this seminar, we described a situation that used to be very common in real estate.

"New York Real Property Law § 443

Disclosure regarding real estate agency relationship; form

Agency by Ratification

Principal either by act or by agreement ratifies conduct of a person who is not in fact an agent

Commingling

The act of mixing client funds with the broker's personal or business funds in trust, business, or personal checking accounts.

Care

The agent must show "reasonable care and skill."1 The most obvious repercussion for being careless in the real estate industry is the risk of being liable for negligence. If an agent is not exercising care in all of their real estate practices, they could be at risk. Example: Michael is an agent who agrees to list a house in an area in which he is not familiar with the market. He did not take the time to research the fair market value of his client's property by a careful review of sales of other similar properties in the area. Consequently, Michael listed the home below the market value and could now be considered negligent. If the seller desired, he could legally go after Michael for damages.

Single Agency:

The agent represents one party only; either the buyer or the seller.

Buyer Agency:

The agent represents only the buyer in a transaction.

Seller Agency:

The agent represents the seller only; the buyer is a customer.

Obedience

The agent's duty to be obedient refers to his obligation to obey the principal's instructions. The agent is obligated to work in the best interest of his or her client in a lawful manner. If the client is asking an agent to do something that is unlawful, the duty of obedience is no longer in effect. An example of an unlawful request from a principal would be if a seller asked the agent not to tell potential buyers of a known defect in the property. In this case, the agent would not have to obey the client.

Loyalty

The agent's loyalty must be 100% to the principal. The agent must put the principal's interest above all others, even their own self-interests, in a transaction. An example of a situation where this problem could arise is if a broker has a personal reason for wanting the brokerage client to buy or sell a particular property. This might happen if the broker is a property manager of the building or if he has a personal relationship with the owner of the property. Along with loyalty to a client comes confidentiality. Any information that the client shares with their agent must remain confidential, unless otherwise specified by the client. For example, if the agent is representing the seller and he knows the seller would be willing to accept a lower offer on a property, he is not to disclose that information unless he has permission from the seller. If he is representing the buyer, he cannot disclose any information about the buyer's financial situation or any higher offers that the buyer might be willing to make unless given consent by his client, the buyer.

Agency by Estoppel

is an agency relationship that is created because the principal's action caused a third party to believe that an agency relationship exists.

Tort law

law that defines and enforces duties and rights among private individuals that are not based on contractual agreements

Contract Liability

liability of principals and agents for contracts entered into with third parties