California Real Estate Chapter 8

Natural Hazards Disclosure

"A natural hazards disclosure statement is used to disclose whether a home is in an area or zone designated as especially subject to flooding, wildfires, or earthquakes; in the vicinity of an airport; or within one mile of a farm. The disclosure form can be completed by the seller or the seller's agent, or by a consultant hired for that purpose. No matter who fills out the form, the information provided must be based on maps drawn by state or federal authorities (not just the seller's or agent's own knowledge)."

Third parties

"A person seeking to deal with the principal through the agent" "Persons outside the agency relationship who seek to deal with the principal through the agent" "A third party has a duty, when dealing with an agent, to make a reasonable effort to discover the scope of the agent's authority. The third party won't be able to hold the principal liable when an agent acts beyond the scope of his actual authority and the principal's conduct doesn't indicate approval of those acts. When a contract between the principal and a third party limits the agent's authority to make representations, the third party is on notice that any representations made by the agent beyond the written terms of the agreement are unauthorized and not binding on the principal."

Fiduciary relationship

"A person who stands in a special position of trust and confidence in relation to someone else."

Present all offers

"A real estate agent must present all offers to the seller, regardless of how unacceptable a particular offer may appear to be. The principal, not the agent, decides whether or not to accept a particular offer. The agent should never hesitate to inform the principal of an offer, even if its acceptance would mean a smaller commission for the agent; the agent's first loyalty must be to the principal. Furthermore, an agent should present an offer even if the prospective buyer failed to submit a good faith deposit along with the offer."

Agent's Duties to Third Parties

"A real estate agent owes a third party a duty of reasonable care and skill and a duty of good faith and fair dealing. "Courts have held real estate agents to increasingly higher standards in their interactions with third parties In addition, in residential transactions there is a duty to inspect the property."

Customer

"A real estate agent who is representing a seller or a landlord will sometimes refer to a potential buyer or tenant as a customer."

Sex Offender Information Website

"A residential purchase agreement must contain a notice that the California Department of Justice has made information about registered sex offenders available to the public on a website. This is often referred to as the Megan's Law disclosure."

In-house sale

"A sale in which the buyer and the seller are brought together by salespersons working for the same broker."

Cooperative sale

"A sale in which the listing agent and the selling agent work for different brokers."

Property's true value

"A seller's agent is also required to inform the principal of the property's true value. It isn't improper for a real estate agent to buy the principal's property with the principal's knowledge and consent, and then resell the property for a profit. But the agent must provide the principal with her estimate of the real value of the property before the property is sold. (Note that an ordinary buyer—an unlicensed person who isn't acting as the seller's agent—is under no obligation to tell the seller that he plans to resell at a profit.)"

Real Estate Agency Relationships

"A typical residential real estate transaction is likely to involve more than one real estate agent. Someone who wants to find a home in a particular area contacts a real estate broker's office in that area. One of the salespersons who works for that broker will interview the prospective buyer to find out what kind of a home she wants and can afford, and then will show the buyer various suitable properties. Most brokers belong to a multiple listing service, so the salesperson will show the buyer not only homes that are listed directly with his own broker, but also homes that are listed with other MLS members. If the buyer becomes interested in a particular home, negotiations for the purchase of that home will involve the listing agent as well as the salesperson who has been showing properties to the buyer. Meanwhile, other real estate agents may be showing the same house to other prospective buyers. By the time the transaction closes, it may involve a listing broker, a listing salesperson, a selling broker, and a selling salesperson, in addition to other cooperating agents who showed the home to buyers who didn't want it or didn't offer enough for it. Understanding the agency relationships in this transaction means understanding which party each of these real estate licensees is representing. As a first step, you should be familiar with all of the following terms: -Real estate agent -Client -Customer -Listing agent -Selling agent -Cooperating agent -In-house sale -Cooperative sale

Trust funds

"Account for any funds or other valuable items she receives on behalf of her principal"

Drug Labs

"After determining that property has been contaminated by methamphetamine activity, the local health department will issue an order prohibiting use or habitation of the property. If it is put up for sale before the department declares that it is clean and needs no further action, the seller must give buyers a copy of this order."

Death or Incapacity

"An agency is terminated before it expires if either the agent or the principal dies. An agency also terminates if either party becomes mentally incompetent. Generally, the agent has no authority to act after the death or incapacity of the principal, even if the agent is unaware of the principal's death or incapacity."

Agent's Duties to the Principal

"An agency relationship is a fiduciary relationship." "The other party has a legal right to rely on the fiduciary, and the law holds the fiduciary to high standards of conduct." "He owes the principal the fiduciary duties of utmost care, integrity, honesty, and loyalty. The agent owes these fiduciary duties to the principal from the time the agency relationship begins, and the agent must continue to fulfill them until the relationship ends. Certain obligations, such as the obligation to protect the principal's confidential information, continue even after an agency relationship ends."

Fulfillment of Purpose

"An agency relationship terminates when its purpose has been fulfilled. For example, if a broker is hired to sell the principal's property and the broker does so, the agency is terminated by fulfillment."

Expiration of Agency Term

"An agency terminates automatically when its term expires. If an agency agreement didn't include an expiration date, it will be deemed to expire within a reasonable time. (How much time a court would consider reasonable will vary, depending on the type of agency in question.) If there's no expiration date, either party may terminate the agency without liability for damages, although the other party might be able to demand reimbursement for expenses incurred before the termination."

Actual vs. Apparent Authority

"An agent may have actual authority to perform an action on the principal's behalf, or else may have only apparent authority."

Reasonable Care and Skill

"An agent must use reasonable care and skill in providing services to third parties as well as to the principal. If the agent's negligence or incompetence harms a third party, the agent may be liable."

Duties in an Agency Relationship

"An agent owes certain duties to her principal, and both the agent and the principal have certain responsibilities to third parties."

Obedience

"Another aspect of the duty of loyalty is obedience. The agent must obey the instructions of the principal and carry them out in good faith. The agent's acts must conform to the purpose and intent of the instructions. A broker can be held liable for any loss caused by failure to obey the principal's instructions."

Actual fraud

"Any intentional material misrepresentation may constitute actual fraud"

Duty to Inspect

"At one time, agents representing the seller were required only to pass on the seller's information about the property to prospective buyers; the law didn't require them to inspect the property and look for problems. Today, however, California law specifically imposes a duty of inspection on any agent who represents the seller of a one- to four-unit residential property, unless it's a new home in a subdivision offered for sale for the first time. The duty also applies to agents who cooperate with a seller's agent in finding a buyer for such a property. To fulfill this duty, an agent must conduct a reasonably competent and diligent visual inspection of the property and disclose to prospective buyers any material information the inspection reveals. Stating that the property is for sale "as is" doesn't negate the agent's duty to inspect it and disclose material facts about its condition. The agent isn't required to inspect areas of the property that aren't reasonably accessible to visual inspection. In the case of a condominium or cooperative unit, the agent is only required to inspect the unit being sold, not the common areas. If an agent fails to inspect residential property and make disclosures as required, and the buyer is harmed as a result, the buyer can sue the agent and her broker. A lawsuit based on the duty to inspect must be filed within two years after the buyer takes possession of the property. It should be noted that the agent's duty to inspect the property doesn't relieve buyers of the duty to use reasonable care to protect themselves."

General agent

"Authorized to handle all of the principal's affairs in one or more specified areas. He has the authority to conduct a wide range of activities on an ongoing basis on behalf of the principal. Ex. A business manager who has the authority to handle personnel matters, enter into contracts, and manage the day-to-day operations of the business is considered to be a general agent." "A real estate broker providing property management services to a property owner on an ongoing basis might be considered the owner's general agent, depending on the scope of authority she grants the broker."

Limited dual agency.

"Because it's impossible to fully represent the interests of both parties at the same time, dual agency is sometimes referred to as limited dual agency."

Disclosed Dual Agency

"Dual agency is legal in California. A dual agent represents both the seller and the buyer in the same transaction. The agent must do nothing that would harm the interests of either party, and may not reveal either one's confidential information to the other. However, before acting as a dual agent, a broker must have the informed written consent of both parties to the transaction. Acting as a dual agent without full disclosure to one or both parties is a violation of the Real Estate Law and grounds for disciplinary action. In that situation, it's possible that neither party would have to pay the brokerage commission and either could rescind the transaction. Each party to a dual agency should be informed that he or she won't receive full representation. Certain facts must necessarily be withheld from each party; the dual agent can't reveal confidential information about one party to the other party. Real estate agents should be particularly careful with their disclosures in the context of dual agency. Buyers and sellers, eager to get on with the business of buying and selling a home, may agree to a dual agency without really understanding what it means. They may accept the agent's explanation at face value and sign a disclosure form without question. Later, one party might feel that the agent breached his fiduciary duties. That kind of disappointment may lead to legal action."

Special agent

"Has limited authority to do a specific thing or conduct a specific transaction. Ex. An attorney who is hired to litigate a specific legal matter, such as a person's divorce, is a special agent." "In most cases, a real estate broker representing a seller or a buyer is a special agent, because the broker has only limited authority." "A seller hires a broker to find a buyer for a particular piece of property, and the broker is only authorized to negotiate with third parties, not to sign a contract on the seller's behalf. Similarly, a broker representing a buyer is hired for a particular transaction and is authorized to negotiate for the buyer but not to sign a contract. A seller or a buyer can grant a real estate broker broader powers, but doesn't ordinarily do so."

Taxes and Assessments

"If residential property is subject to special taxes under the Mello-Roos Community Facilities Act or subject to assessments for bonds issued under the Improvement Bond Act of 1915, the seller must make a good faith effort to obtain a disclosure concerning the lien from the taxing district and give it to buyers. Sellers also have to disclose that buyers may receive a supplemental property tax bill"

Other State Property Disclosure Requirements

"In addition to a transfer disclosure statement, a number of other disclosures may be required by California law in a particular transaction. Some concern the property's physical condition, others are required because of the property's location. Like the transfer disclosure statement, these other disclosures are generally required in sales of residential property with up to four units."

Dual agency

"In addition, the agent is required to reveal a dual agency. There is a dual agency when a real estate broker is employed by both the seller and the buyer in the same transaction. In California, dual agency is legal in a real estate transaction as long as the broker has fully informed and obtained the consent of both parties. However, a conflict of interest is inherent in a dual agency. A seller wants to get the highest possible price for the property, while the buyer wants to pay the lowest possible price. It's difficult, if not impossible, to adequately represent these two opposing interests simultaneously." -"As was explained earlier, a dual agency relationship exists when an agent represents both the seller and the buyer in the same transaction. (In contrast, if an agent is representing only one of the parties, it's sometimes called single agency.) A dual agent owes fiduciary duties to both principals. Because the interests of the buyer and the seller usually conflict, it's difficult to represent both without being disloyal to one or both of them." "Because it's impossible to fully represent the interests of both parties at the same time, dual agency is sometimes referred to as limited dual agency."

Disclosure Laws

"In an effort to reduce confusion over agency representation, California and many other states passed agency disclosure laws—laws that require real estate agents to disclose to both the buyer and the seller which party they are representing in a transaction. But even agency disclosures don't always prevent problems. Real estate agents must understand the consequences of the different types of agency relationships and learn to avoid the pitfalls that certain situations present."

Real estate agents

"In common parlance salespersons as well as brokers are called real estate agents"

Agency Relationships: A Historical Perspective

"In the 1980s, various organizations, including the Federal Trade Commission, the National Association of Realtors®, and the Association of Real Estate License Law Officials, conducted studies of agency representation in real estate transactions. They concluded that many real estate buyers and sellers were confused about which party a real estate agent represented. Buyers, in particular, appeared bewildered by the rules of real estate agency. They often thought the real estate agent that they were working with was representing them, when in fact the agent was almost always representing the seller."

Material facts

"Information that could affect a party's decisions in a transaction, such as information that has a substantial negative impact on the value of the property, or that indicates one of the parties may not be able to perform as agreed." "Any fact that could influence the principal's judgment in the transaction is a material fact that must be disclosed. Ex. If a seller's real estate agent discovers that a potential buyer is in a shaky financial situation, the agent must inform the seller, even if it means losing a sale and a commission."

Secret profits

"Loyalty to the principal also means that the agent mustn't make any secret profits from the agency. Any financial gain must be disclosed to the principal. Ex. It would be a breach of fiduciary duty for a broker to list a property for less than it's worth, secretly buy it through an intermediary, and then sell it for a profit. The California Real Estate Law also specifically prohibits a real estate agent from buying an interest in property from the principal (through a relative or friend, for example) without the principal's full knowledge and consent."

Express Agreement

"Most agencies are created by express agreement (written or oral) between the principal and agent. Consideration is not required for an agency agreement. A listing agreement or a buyer agency agreement is an express agreemnt. Another example is a power of attorney. In a power of attorney, a principal appoints another person to act as his attorney in face and cary out actions specified in the document. 1. The principal appoints someone to act as his agent, and the agent accepts the appointment. The agreement doesn't have to be in writing in order to create a valid agency relationship. 2. The agency agreement also doesn't have to be supported by consideration. Agency rights, responsibilities, and liabilities arise even when the principal has no contractual obligation to compensate the agent for the services rendered." Ex. "If a broker doesn't have a written listing agreement with a seller, the broker can't sue the seller for compensation. Yet even without a written agreement, the broker still may be the seller's agent, with all of the duties and liabilities that agency entails." An agency agreement must meet some, but not all, of the requirements for a valid contract. Both parties must consent to the agency, both must be legally competent, and the purpose of the agency must be lawul. However consideration is not required. So an agency relationship can exist even when the principal isn't compensating the agent for her services. An oral agreement can create a valid agency relationship. The agency begins as soon as the parties agree to it. Note, however, that a broker is not entitiled to sue a client for compensation unless their agreement is in writing.

Principal Revokes

"The principal may revoke the agency by firing the agent whenever he wishes. (Remember that an agency relationship requires the consent of both parties.) However, in some cases revoking an agency breaches a contractual agreement, and the principal may be liable for any damages suffered by the agent because of the breach."

Relationship with a buyer

"The seller's agent must inform the principal if the agent has any relationship with a buyer—before the principal decides whether to accept the buyer's offer. If the buyer is a friend, relative, or business associate of the agent, or a company in which the agent has an interest, there may be a conflict of interest. The principal has a right to have this information when making his decision. The agent must also inform the principal if the agent plans to split the commission payment with the buyer.

Stigmatized Properties

"There are some facts that don't have to be disclosed to a prospective buyer (or tenant), because the information could unfairly stigmatize the property. California law specifically provides that property owners and real estate agents do not have to disclose that property was occupied by someone who had or died from AIDS or was HIV-positive. In fact, if a prospective buyer asks an agent whether anyone with AIDS or HIV lived on the property, the agent should decline to answer the question. Answering could violate fair housing laws that prohibit discrimination based on disability " "California law also provides that owners and agents aren't required to disclose that someone died on the property more than three years earlier, no matter what the cause of death was. Naturally, though, if a prospective buyer asked about deaths on the property and the seller or the agent intentionally gave a false answer, that would be a fraudulent misrepresentation."

Seller's Agents & Buyers

"Throughout a transaction, a seller's agent must use his best efforts to promote the interests of the seller. Yet the seller's agent may also provide some services to a prospective buyer. Ex. The seller's agent may help a buyer who doesn't have her own agent fill out a purchase offer form. Assisting the buyer in this way is considered to be in the best interests of the seller, and therefore doesn't violate the agent's duties to the seller. Of course, the seller's agent must disclose to the buyer that he is acting as the seller's agent. A seller's agent must be very careful to treat the buyer fairly, but the agent must not act as if he is representing the buyer. In other words, the agent must fully disclose all known material facts and answer the buyer's questions honestly. However, the agent shouldn't give the buyer advice, such as suggesting how much to offer for the listed property." "The situation in which the problem of inadvertent dual agency is most likely to come up is when the listing agent (who always represents the seller) is the one who finds a buyer for the property. This is especially true if the listing agent has had a previous agency relationship with the buyer. It may be difficult for the agent to represent the seller's interests without feeling some loyalty to the buyer as well."

Apparent authority

(Ostensible authority) (Estoppel) "Where no actual authority has been granted, but the principal allows it to appear that the agent is authorized, and therefore is estopped from denying the agency. Also called ostensible authority." "A person has apparent authority when she has no actual authority to act, but the principal negligently or deliberately allows it to appear that the person's actions are authorized. In other words, the principal's words or conduct lead a third party to believe that this person (the apparent agent or ostensible agent) has authority to act on behalf of the principal. This type of authority corresponds to an agency created by estoppel,"

Principal

(The Seller) "The person who authorizes an agent to act on her behalf." "Who hires the broker to act as her agent." "The party who authorizes and controls the actions of the agent." "A principal is bound by acts performed within the scope of an ostensible agent's apparent authority. However, declarations of the agent alone can't establish apparent authority; the principal must be aware of the declarations or acts and make no effort to deny that they are authorized."

Broker

**See Agent

Seller/Principal

**See Broker's client

Seller

**See Principal

Salesperson

A broker's agent "A real estate salesperson isn't licensed to represent sellers or buyers directly, without a broker" "So, strictly speaking, in the eyes of the law it's the broker, not the salesperson, who has an agency relationship with a seller or buyer." "Also, as agents of their brokers, salespersons owe essentially the same duties to clients and third parties as their brokers do."

Cooperating agent

A cooperating agent is someone other than the listing agent who tries to find a buyer for the property. A cooperating agent who succeeds in procuring a buyer is the selling agent. "Any agent other than the listing agent who attempts to find a buyer for a property." "A cooperating agent is a licensee other than the listing agent who attempts to find a buyer for the property. (The cooperating agent who succeeds in procuring a buyer is then the selling agent.)"

Latent defects

A seller and a seller's agent have a duty to disclose material facts about the property, including any latent defects. Latent defects are problems a buyer would not discover in a casual inspection. A latent defect is a hidden defect, one that isn't discoverable by ordinary inspection. Aside from avoiding misrepresentation, both a seller and a seller's agent have a duty to disclose any known latent defects in the property to buyers.

Buyer Agency

A seller's agent may prepare an offer to purchase and perform other services for a buyer without violating his duty of loyalty to the seller. "The traditional seller agency arrangement (in which the real estate licensee who helps buyers look for a home is a seller's agent, and the buyers don't have an agent of their own) can work well for buyers. A seller's agent gives buyers access to multiple listing inventory, is legally required to provide complete and honest information about properties, and will present their offers to sellers. However, a buyer's agent can offer clients some services and advantages that a seller's agent can't provide to customers; and many buyers now prefer to work with a real estate licensee who's representing them, not the seller."

Seller Agency

A seller's agent promotes the seller's interests by marketing the property and negotiating with prospective buyers on the seller's behalf. "A seller agency relationship is ordinarily created with a written listing agreement. The listing broker is the seller's agent, and the listing salesperson is the broker's agent. Under the terms of the listing agreement, the primary task of a seller's agent is to find a buyer for the seller's property at a price that's acceptable to the seller. To accomplish this, the seller's agent advises the seller about preparing the property for sale, helps the seller decide on the listing price, markets the property, and negotiates on the seller's behalf with buyers and with other real estate agents. A seller agency relationship can be created even in the absence of a written listing agreement, by the words or conduct of the parties. (See implied agency) However, without a written agreement, the broker will not be entitled to sue the seller for a commission if the seller refuses to pay."

Agent Renounces

An agent can renounce the agency at any time. Like revocation, renunciation may be a breach of contract, in which case the agent could be liable for the principal's damages resulting from the breach. But since an agency contract is a personal services contract (the agent agreed to provide personal services to the principal), the principal couldn't demand specific performance as a remedy. The courts won't force a person to perform personal services, because that would violate the constitutional prohibition against involuntary servitude.

Disclosure of Material Facts to the Principal

An agent has a duty to disclose any material facts she's aware of to the principal. A material fact is one that could affect the principal's decision in the transaction. A real estate agent representing a seller must inform the seller of all offers to purchase; the property's true value; any relationship with the buyer; and any dual agency. To fulfill her fiduciary duties, an agent must inform the principal of any material facts that come to the agent's attention." It's important for an agent to remember that communication to the agent is deemed to be communication to the principal (this is the imputed knowledge rule we explained earlier). If a third party provides information to the agent, in the eyes of the law the information has been provided to the principal, regardless of whether the agent actually told the principal. Thus, the principal may be held liable for failure to perform some required task the agent knew about but never communicated to the principal. However, the agent will in turn be liable to the principal for any loss caused by the failure to communicate information or disclose material facts. A real estate agent representing a seller must be especially careful to avoid these disclosure problems: -failure to present all offers, -failure to inform the seller of the property's true value, -failure to disclose any relationship between the agent and the buyer, and -failure to reveal a dual agency.

Loyalty

An agent owes a duty of loyalty to his principal. He must not take any action that is detrimental to the principal's interests, such as disclosing confidential information or collecting a secret profit. The agent must obey the principal's instructions and make a good faith effort to carry them out. "The agency relationship is based on confidence, so loyalty is essential. The agent must place the principal's interests above the interests of a third party, and also above the agent's own interests. Because of the duty of loyalty, an agent can't reveal the principal's confidential information to other parties or take advantage of it himself." "Loyalty to the principal also means that the agent mustn't make any secret profits from the agency" "Another aspect of the duty of loyalty is obedience."

Utmost Care

An agent owes the principal the duty to use utmost care and skill in a transaction. If the agent harms the principal through carelessness or incompetence, the agent will be liable to the principal. "An agent must carry out his duties with utmost care and skill. If an agent claims to possess certain skills or abilities, the agent must act as a competent person having those skills and abilities would act. Ex. A person who holds himself out as a real estate broker must exercise the care and skill that a competent broker would bring to the agency. If the broker (or the broker's salesperson) causes the principal harm due to carelessness or incompetence, the broker will be liable to the principal. A real estate agent isn't required to be an expert on every aspect of a real estate transaction. However, an agent must be able to recognize when it's necessary or appropriate for the principal to consult an expert for advice about taxes, legal issues, the condition of the property, or other matters."

Good Faith & Fair Dealing

An agent owes third parties the duty of good faith and fair dealing. The agent must not make false or misleading statements, even if it would benefit her principal. "Real estate agents are legally as well as ethically required to treat third parties fairly. When representing a seller, an agent must disclose all material facts about the property to prospective buyers. The agent also must avoid inaccuracies in statements to prospective buyers. Any intentional material misrepresentation may constitute actual fraud, and even an unintentional misrepresentation could be considered negligence or constructive fraud. Whether the misrepresentation was intentional or not, the buyer might have the right to rescind the transaction and/or sue for damages. (Note that these requirements apply to sellers as well as their real estate agents; sellers also have a duty to disclose material facts about the property to buyers and avoid misrepresentations.)" "A distinction is generally drawn between misrepresentations, on the one hand, and opinions, predictions, or "puffing," on the other. These are nonfactual or exaggerated statements that a buyer should realize she can't rely on. Since it isn't reasonable to rely on them, opinions, predictions, and puffing generally aren't actionable—in other words, they can't be the basis for a lawsuit." "Although statements such as these may not be actionable, it's unethical for a real estate agent to make any statement to a buyer concerning the property that the agent doesn't believe. Also, something an agent regards as harmless "sales talk" could be understood as a statement of fact by an unsophisticated buyer, and a court might decide it is actionable. For instance, an agent who made the prediction about a dramatic increase in property values given in our example could be on dangerous ground."

Advantages of Buyer Agency

Being represented by a buyer's agent gives a buyer the advantages of loyalty and confidentiality, objective advice, help with negotiating, and access to more homes. "The chief advantages of buyer agency include: -loyalty and confidentiality, -objective advice, and -help with negotiations. A buyer's agent owes fiduciary duties to the buyer. For many buyers, the duty of loyalty and confidentiality is the most important advantage of buyer agency." "A buyer's agent can be relied upon to give the buyer objective advice about the pros and cons of purchasing a particular home. He will point out various issues the buyer should be aware of, such as energy costs, the need for future repairs, and property value trends. By contrast, a seller's agent will present the property in the most positive light and may use expert sales techniques to convince the buyer to sign on the dotted line. Buyers often feel uncomfortable negotiating for a property, especially one they really want to buy. They may be afraid to make a mistake through ignorance, or they may feel pressured to make a high offer quickly before someone else snaps up the property. A buyer's agent can use her negotiating skills and intimate knowledge of the real estate market to help the buyer get the property on the best possible terms. Another potential advantage of buyer agency is access to more homes. A buyer's agent may arrange to be compensated if the buyer purchases any property, whether or not it's listed with a multiple listing service. So a buyer's agent may pursue less traditional means of searching for properties, and may be more willing to show the buyer homes that are for sale by owner or have open listings."

Listing agent

Either the salesperson who lists a seller's property or the broker that salesperson works for may be referred to as the listing agent. "The agent who takes the listing on a property, and who may or may not be the agent who procures a buyer." "Either the listing salesperson or the listing broker may be referred to as the listing agent. The listing salesperson is the salesperson who takes the listing on a home. (She may or may not be the one who eventually procures a buyer for the listed home.) The listing broker is the broker that the listing salesperson works for."

Selling agent

Either the salesperson who procures a buyer for a listed home or the broker that salesperson works for may be referred to as the selling agent. "The agent who procures a buyer for a property, and who may or may not have taken the listing." "Either the selling salesperson or the selling broker may be referred to as the selling agent. The selling salesperson is the salesperson who procures a buyer for a property. (He may or may not have taken the listing for the property sold.) The selling broker is the broker that the selling salesperson works for."

Breach of Duty

If a real estate agent breaches a duty either to her principal or to a third party, the injured party may file a tort suit against the agent. The court may order the agent to pay compensatory damages. Whether or not there is a lawsuit, the Department of Real Estate may suspend or revoke the agent's real estate license. "If a licensee breaches any duties owed to either a principal or a third party, it's considered a tort." "The party injured by the tort, whether it's the principal or a third party, is then entitled to sue for redress. The most common remedy in a tort suit is compensatory damages. A court will order the licensee to compensate the injured party for the financial loss he suffered. This might include repaying any commission collected in a transaction. The injured party may also be allowed to rescind the transaction. If a licensee misrepresents property to a buyer, the buyer can sue the licensee and her broker in a tort action. In addition, the buyer can sue the broker's principal, the seller. That's because, according to the doctrine of vicarious liability, a principal is liable for torts committed by the agent within the scope of her agency. So the seller could be held liable to the buyer even if the seller wasn't aware of the licensee's misrepresentations. An innocent seller who has been held liable for his agent's misconduct could, in turn, sue the licensee and her broker. Most breaches of duty by licensees are also violations of the California Real Estate Law. The Department of Real Estate may take disciplinary action against a licensee and her broker even

Types of Agency Relationships

In California, real estate agents can have the following types of agency relationships with their clients: -seller agency, -buyer agency, or -dual agency

Agency Relationships

In an agency relationship, the principal authorizes an agent to represent him in dealings with third parties. A real estate broker is her client's agent. The client is the broker's principal. "An agency relationship arises when one person authorizes another to represent him, subject to his control, in dealings with third parties." "The parties in an agency relationship are the agent and the principal, ." "There is an agency relationship between a property seller and the real estate broker that the seller has listed the property with."

Implied actual authority

Is the authority to do what is necessary to carry out actions that were expressly authorized.

Agency disclosure form

The agency disclosure form is a general information form that explains the duties of a seller's agent, a buyer's agent, and a dual agent. The listing agent must give the form to the seller before the listing is signed. The selling agent must give the form to the buyer before the offer is signed, and to the seller before the offer is presented. "The first step in the disclosure process is providing an agency disclosure form. This form gives a clear explanation of the duties of a seller's agent, a buyer's agent, and a dual agent. An agent must give the parties the disclosure form and also have them sign a copy to acknowledge that they received it. The listing agent must give a copy of the agency disclosure form to the seller before the seller signs the listing agreement. The selling agent must give a copy to each party as soon as practicable; the buyer must receive it before signing the offer to purchase, and the seller must receive it before the offer is presented. (If the selling agent isn't dealing with the seller directly, the selling agent's disclosure form may be delivered to the seller by the listing agent or by certified mail.) In addition to giving the parties the general disclosure form explaining the different types of real estate agency relationships, each agent is required to disclose whether he or she is representing only the seller, only the buyer, or both the seller and the buyer in this particular transaction. The agents must make their disclosures to the parties as soon as practicable. Each agent's disclosures must be confirmed in writing by having the parties sign an agency confirmation statement before or at the same time that they enter into a contract. An agency confirmation statement doesn't have to be a separate document; in most cases, a confirmation statement is included in the purchase agreement"

Agency Law

"A body of law that applies to agency relationships in nearly any context" "An agency relationship has significant legal implications" "For a third party, dealing with the agent can be the legal equivalent of dealing with the principal. For instance, when an agent who is authorized to do so signs a document or makes a promise, it's as if the principal signed or promised" "If the agent does something wrong, the principal may be held liable to third parties for harm resulting from the agent's actions." "It governs the relationship between: -lawyer and client or -trustee and beneficiary - real estate agent and client, (whether the client is a seller, a buyer, a landlord, or a tenant"

Client

"A client is a person who has engaged the services of a real estate agent. A client may be a seller, a buyer, a landlord, or a tenant."

Actual authority

"Authority granted to the agent by the principal, either expressly or by implication. Express actual authority is communicated to the agent in express terms, either orally or in writing. Implied actual authority is the authority to do what is necessary to carry out actions that were expressly authorized." Ex. "When a seller lists property with a broker, the broker is given express actual authority to find a buyer for the property. Based on custom in the real estate industry, the broker also has the implied actual authority to delegate certain tasks to a licensed salesperson. In contrast, the authority granted to the broker doesn't imply the power to enter into a contract or execute a deed on the seller's behalf."

Constructive fraud

"Even an unintentional misrepresentation could be considered negligence or constructive fraud"

Cooperation & Compensation

"In the 1990s, as new legal requirements and various other considerations made real estate transactions more complex, buyers became more interested in having their own agents to represent them. In response to the growing popularity of buyer agency, many multiple listing services replaced the unilateral offer of subagency in their listing agreements with a "cooperation and compensation" provision. Under the terms of this provision, other members of the MLS act only as cooperating agents, not as subagents. A cooperating agent is simply any member of the MLS who attempts to find a buyer; the listing agreement doesn't set any type of agency relationship for a cooperating agent. It becomes up to each individual cooperating agent to decide whether she will represent the seller or the buyer in a given transaction."

Legal Effects of Agency

"Once an agency relationship has been established, the principal is bound by acts of the agent that are within the scope of the agent's actual or apparent authority. Under general agency law, the principal may be held liable for harm caused by the agent's negligent or wrongful acts. In addition, the principal may be held to know information that is known to the agent."

Terminating an Agency Relationship

"Once an agency relationship has terminated, the agent is no longer authorized to represent the principal. Under general agency law, an agency may be terminated either by acts of the parties or by operation of law."

Real estate agent

"Real estate agent is the generic term used to refer to real estate licensees. Real estate brokers are the only real estate agents who are authorized to represent a buyer or a seller directly; real estate salespersons act on behalf of their real estate brokers."

Miscellaneous

"Sellers are also required to inform buyers: if the property is within one mile of an ordnance location (an area that was once used for military training, and which may contain live ammunition); if there are window security bars, and how the safety release mechanisms work; and if the property is adjacent to an industrial use, zoned for industrial use, or affected by an industrial nuisance.

Transfer Fees

"Sometimes a subdivision's CC&Rs provide that when property in the subdivision is sold, the buyer will be charged a transfer fee to fund maintenance of subdivision amenities, improvements, or open space. If so, the seller must disclose the amount and other information about the fee to prospective buyers."

Agency Disclosure Requirements

"To avoid some of the confusion about who is representing whom, California law requires real estate agents in residential transactions to make agency disclosures to their clients and customers. This requirement applies to transactions that involve property with one to four dwelling units."

Lead-based Paint Disclosures

"Transactions that involve housing built before 1978 are subject to a federal law concerning lead-based paint, a health hazard to children. The law requires a seller or landlord to disclose the location of any lead-based paint he is aware of in the home or common areas; provide a copy of any report concerning lead-based paint in the home, if it has been inspected; and give buyers or tenants a pamphlet on lead-based paint prepared by the U.S. Environmental Protection Agency. In addition, buyers (though not tenants) must be offered at least a 10-day period in which to have the home tested for lead-based paint. The purchase agreement or lease must include specific warnings and signed statements from the parties acknowledging that the requirements of this law were fulfilled. The acknowledgments must be kept for at least 3 years."

Earthquake Guide

"Whether or not the property is in an earthquake fault zone, buyers purchasing a home built before 1960 using light-frame construction must be given a booklet called A Homeowner's Guide to Earthquake Safety If improvements suggested in the booklet haven't been made, that must be disclosed to the buyers."

Agent

(The Broker) "A person authorized to represent another in dealings with third parties." "Represents the seller/principal's interests in negotiations with potential buyers/third parties" "The person who's authorized to represent another" "A real estate broker may also have an agency relationship with a buyer. The buyer hires the broker to locate a particular kind of property and negotiate its purchase. The broker is the buyer's agent, and the buyer is that broker's principal (or client). There is also an agency relationship between a real estate broker and the salespersons who work for the broker. In other words, a real estate salesperson is her broker's agent." "Note that brokers involved in property management may have agency relationships with landlords or tenants. Brokers working with landlords and tenants have essentially the same agency duties as brokers working with sellers and buyers." An agent has a duty of loyalty to the principal. This means that the agent is legally obligated to act in the principal's best interests.

Tort

A tort is a negligent or wrongful act that causes an injury or financial harm to another person. "A negligent or intentional wrongful act involving breach of a duty imposed by law (as opposed to breach of a contractual duty). It's a mistake, accident, or misconduct that results in an injury or financial harm to another person." Ex. "Negligent driving that results in an accident and injures another driver is a tort. Someone who commits a tort may be sued by the injured party and required to compensate him."

Subagent

Aan agent of an agent offer of subagency in a timely fashion and then enter into a separate written agreement with the buyer. This was rarely done; so in nearly all transactions, all of the licensees involved represented the seller."

Compensation Doesn't Affect Agency

Although a buyer's agent is often compensated through a commission split with the listing agent, this doesn't create an agency relationship between the buyer's agent and seller. "When a buyer purchases listed property, the buyer's agent is usually paid through a commission split with the listing agent. This means that the buyer's agent is being paid by the seller, at least indirectly. A state statute specifically provides that a seller or buyer's payment of compensation to a real estate licensee doesn't determine their agency relationship. Thus, a commission split arrangement doesn't create an agency relationship between the buyer's agent and the seller, and it doesn't involve any violation of the fiduciary duties that the buyer's agent owes the buyer."

Ratification

An agency is created by ratification if the principal gives approval after the fact to acts that weren't authorized at the time the agent performed them. "When the principal gives approval to unauthorized actions after they are performed, creating an agency relationship after the fact." An agency is created by ratification when the principal gives approval after the fact to acts performed by: -a person who had no authority to act for the principal, or -an agent whose actions exceeded the authority granted by the principal "The principal may ratify unauthorized acts expressly, or by accepting the benefits of the acts" Ex. "If the principal accepts a contract offer negotiated by someone who wasn't authorized to negotiate on her behalf, the principal has ratified the agency"

Estoppel

An agency may be created by estoppel when a principal allows a third party to believe that an unauthorized person is acting as her agent. The principal is estopped from denying an agency relationship, because that would be unfair to the third party. "When the principal allows a third party to believe an agency relationship exists, so that the principal is estopped (legally precluded) from denying the agency" Under the legal doctrine of estoppel, a party isn't allowed to take a position that contradicts her previous conduct if someone else has reasonably relied on the previous conduct. Ex. A court may rule that an agency relationship was created by estoppel, even if the principal denies that someone was acting as her agent.

Termination by Operation of Law

An agency relationship may terminate automatically by operation of law. This may occur because of expiration of the agency term; fulfillment of purpose; death or incapacity; or extinction of the subject matter. Several events terminate an agency relationship automatically, without action by either party. These events include: -expiration of the agency term, -fulfillment of the purpose of the agency, -the death or incapacity of either party, and -extinction of the subject matter.

Integrity & Honesty

An agent must always act ethically and honestly when dealing with the principal. The agent must account for trust funds held on the principal's behalf, and must avoid commingling trust funds with her own funds. "An agent must meet the highest standards of integrity and honesty in all of her dealings with the principal. She must act ethically and take responsibility for her actions, and she must not withhold information from the principal that could affect his decisions in the transaction. The agent must account for any funds or other valuable items she receives on behalf of her principal. She's required to report to the principal on the status of those funds, known as trust funds, and avoid mixing (commingling) them with her own money. In California, a real estate broker is required to deposit all trust funds in a special trust or escrow account to prevent improper use of the funds."

Implication

Based on express authority "An agency may be created by implication when one person behaves toward another in a way that suggests or implies that she is acting as that other person's agent. If the other person reasonably believes there is an agency relationship, and the supposed agent fails to correct that mistake, she may owe the other person agency duties. Although agency by implication resembles agency by estoppel, there's a significant difference between them. An agency by estoppel requires the principal to acknowledge that an agency relationship exists, to PROTECTS the interests of a third party. An agency by implication requires the agent to acknowledge that an agency relationship exists, to protect the principal's interests."

Scope of Authority

The extent to which the principal can be bound by the agent's actions depends first of all on the scope of authority granted to the agent. In California, there are two basic types of agents: 1. general agents, and 2. special agents

Unilateral Offer of Subagency

The unilateral offer of subagency was once a standard provision in MLS listing forms. It held that a cooperating agent from the multiple listing service who found the buyer was a subagent of the listing broker's principal, and therefore represented the seller. "This confusion was based on a standard provision found in MLS listing agreements at that time. This provision essentially stated that any member of the multiple listing service who found a buyer for a listed property would automatically be a subagent of the seller. This meant that the selling agent as well as the listing agent represented the seller. This listing provision was referred to as a "unilateral offer of subagency." As long as this provision remained in listing agreements, it was quite inconvenient to enter into a buyer agency relationship. In order to represent a buyer in a particular MLS transaction, a licensee had to reject the

Termination by Acts of the Parties

The ways in which the parties can terminate an agency relationship include: -mutual agreement, -revocation by the principal, and -renunciation by the agent.

Imputed Knowledge Rule

Under general agency law, a principal is held to have notice of information that is in the possession of the agent. "Under general agency law, a principal is considered to have notice of information that the agent has, even if the agent never actually tells the principal. In other words, the agent's knowledge is automatically imputed to the principal. As a result, the principal could be held liable for failing to disclose a problem to a third party, even if the agent never informed the principal of the problem"

Vicarious Liability

Under general agency law, a principal may be held liable for torts committed by his agent. "Under general agency law, a principal may be held liable for her agent's negligent or wrongful acts" "Thus, a real estate broker can be held liable for the acts of a salesperson who works for him. And a buyer or a seller can be held liable for the acts of her real estate broker." "A buyer or seller may also be held liable for the acts of a salesperson who's working for his broker. This liability is based on the theory that the broker is vicariously liable for the salesperson's actions, and the principal is in turn vicariously liable for actions the broker is liable for. Unless an agent has no authority to hire other people to fulfill the terms of the agency, the principal may be legally responsible for the acts of the agent's agent. A real estate broker is generally presumed to have the authority to hire a salesperson, because that's the standard practice in the industry. So a buyer or a seller can be held liable for a real estate salesperson's acts."

Creating an Agency Relationship

Under general agency law, an agency relationship may be formed in four ways: 1. by express agreement, 2. by ratification, 3. by estoppel, or 4. by implication "The only requirement is the consent of both parties"

Agency coupled with an interest

When an agent holds a personal interest in the subject matter of the agency, it's called an agency coupled with an interest. An agency coupled with an interest can't be revoked. "An agency coupled with an interest can't be revoked. An agency is coupled with an interest if the agent has a financial interest in the subject matter of the agency. For instance, if a real estate licensee co-owns a property with other people, and they've authorized him to represent them in selling the property, it's an agency coupled with an interest. The co-owners can't revoke it.

Mutual Agreement

"The parties may terminate the agency by mutual agreement at any time. If the original agreement was in writing, the termination agreement should also be in writing."

Broker's client

(The seller/principal)

Inadvertent Dual Agency

An inadvertent dual agency may be created by implication; for example, when a real estate agent who's representing the seller acts as if he's representing the buyer. Unintentionally, the agent's behavior makes him a dual agent. However, even though the subagency arrangement was well established, it was easy for a buyer to mistakenly believe that the selling agent was acting as the buyer's agent, not the seller's. After all, the selling agent was working with the buyer on a continuous and usually friendly basis. The agent would often encourage the buyer's loyalty by going out of his way to meet the buyer's needs. As a result, the buyer often told the selling agent confidential information. Yet because the selling agent was representing the seller, he had a duty to pass along that confidential information to the seller. If the agent fulfilled that responsibility, the buyer might well be surprised and dismayed. But in many cases, the selling agent would let his natural desire to help the buyer interfere with the fiduciary duties owed to the seller. This confusion caused trouble for everyone, and sometimes resulted in the creation of an inadvertent dual agency." -"As we've discussed, a dual agency may be created unintentionally. In fact, many dual agency lawsuits involve an accidental or unintended dual agency in which the conduct of the seller's agent, or the personal relationship between the agent and the buyer, is such that an implied agency is created with the buyer. An agent's best protection against inadvertent dual agency is to comply carefully with the agency disclosure requirements and then act in accordance with the disclosure, never forgetting which party she's representing."

Commingling

Illegally mixing deposits or monies, collected from a client, with one's personal or business account. Taking money out too soon or putting it into escrow too late (10 banking days).

Transfer Disclosure Statement

In a residential transaction, the buyer is entitled to a real estate transfer disclosure statement. The form is filled out by the seller, the listing agent, and the agent who obtains the offer. It is the responsibility of the agent who obtains the offer to give the disclosure statement to the buyer. "Any disclosures required as a result of an agent's property inspection are usually made in the appropriate section of the real estate transfer disclosure statement, a form that must be presented to the prospective buyer in any transaction involving one- to four-unit residential property. The transfer disclosure statement is used to list the seller's disclosures concerning: -what's included in the sale; -any known defects in the property; and -any other problems with the property, such as environmental hazards, structural changes made without appropriate permits, or neighborhood nuisances. In addition, the form has separate sections to be filled out by the listing agent and the selling agent (the agent who obtained the buyer's offer). Each agent is required to make note of any material facts discovered in his or her own visual inspection of the property; the listing agent is also required to disclose material facts about the condition of the property learned from the seller. The selling agent is responsible for providing the completed disclosure statement to a prospective buyer. It's important to remember that an agent should fill out only her own section of the form, not the seller's sections. Filling out those sections is the seller's responsibility." "The transfer disclosure statement should be delivered to buyers as soon as possible. The law gives buyers 3 days from the time the disclosure statement is delivered (or 5 days from the time it is mailed) to rescind the purchase agreement, if they decide they don't want to purchase the property after all. Some transactions involving one- to four-unit residential property don't require a transfer disclosure statement. These include transfers that occur as a result of a mortgage or deed of trust foreclosure, probate proceedings, divorce settlements, or other court orders. Sales of property in new subdivisions are also exempt. In some cities and counties, local laws require sellers to give buyers a local option transfer disclosure statement in addition to the state-required transfer disclosure statement. A local option statement provides information about the neighborhood or community."

Confidential information

Information gained during or relating to the representation of a client, agency "Confidential information learned in the course of an agency relationship must be protected even after the agency has ended."

Express actual authority

Is communicated to the agent in express terms, either orally or in writing.

Extinction of Subject Matter

The subject matter of a real estate agency is the property in question. If the property is in any way extinguished (for example, sold or destroyed), the agency automatically terminates.