Real Estate Agency Law

Power of Attorney

A power of attorney is *a legal document that permits a person to act as an agent for another person*. Powers of attorney can be wide or narrow in scope and can permit the agent (also known as an attorney-in-fact) to deal with any number of issues. With regard to real estate, a power of attorney *can permit the chosen agent to manage and transact real estate*. Furthermore, if a person is managing or transacting real estate under a power of attorney, generally speaking, they do not need to be licensed by the State of Oregon as a real estate professional. There are some conditions though. In order for the agent to be exempt from real estate licensing requirements, the power of attorney must specifically authorize the agent to supervise the closing or the performance of the purchase or lease contract. Additionally, the power of attorney must meet of the following conditions: - The power of attorney must have been executed before July 1, 2002. - If the power of attorney was executed after July 1, 2002, it must: ~~ be recorded with the recorder of the county where the transaction is taking place, ~~ specifically describe the property being transacted, and ~~ not be used to justify carrying out other real estate activities without a license. Alternatively, the agent can be exempt from real estate licensing requirements if they are the spouse or close blood relative of the person empowering them through the power of attorney or that person's spouse. In this case, the power of attorney must still be recorded in the county where the real estate is being transacted.

Reimbursement and Compensation

A principal is expected to fairly compensate an agent for services that have been rendered. Normally, compensation is agreed upon and is laid out in the contract that establishes the agency relationship. Even if compensation was not officially stated or agreed upon, it is expected that the principal will compensate the agent according to the local market rate for the services performed. The principal may not owe compensation to the agent in the following circumstances: - The agency relationship is illegal - The agent was negligent and caused damages to the principal - The agent misrepresented vital information - The agent committed fraud - The agent acted for a third party that had interests adverse to the principal, without the principal's permission

Performance

A principal party is expected to act in accordance with any contractual agreements that form any agency relationships. This includes acting equitably and in good faith with any agents. A principal has to allow the agent to perform assigned duties and in a manner that does not damage the agent's reputation.

Services Provided to both Buyers and Sellers

A real estate agent represents a client, either a buyer or seller, in negotiating the transaction of a piece of property. In some cases the broker may even act as dual agent for both parties. As an agent of a party involved in a real estate transaction, the broker has to honor the fiduciary relationship that is formed. Mainly the broker negotiates the price of the property on behalf of the represented party. In addition, the broker may organize aspects of a closing where the buyer and seller will meet and actually transact the property.

Buyer and Seller Responsibilities

A real estate licensee only has so much power. Real estate brokers are not attorneys, tax accountants, or financial advisors. At the end of the day, every individual carries the responsibility for protecting their own interests. ORS 696.835 limits the amount of liability a real estate licensee can have by affirming that sellers and buyers have the responsibility to protect their own interests. A broker can be held liable if they fail to adequately perform their job, for instance, if the broker does not do their due diligence in informing their buyer of the importance of an inspection of the property. A broker cannot be held liable for things outside of their expertise or things that the principal insisted on. For instance, if a property buyer does not hire a lawyer and it turns out the title was clouded, the buyer cannot sue their agent. If a seller accepts an offer much lower than they desired, the seller cannot sue the seller's agent for failing to provide a high enough offer. If the broker suggests getting an inspection of the property and the buyer refuses to do so, the buyer cannot hold the broker liable if defects are found. However, if a buyer's agent told the buyer that there was no reason to look at the title and they were certain it was clear and this turned out to be wrong, then the broker would be liable. If the a seller's agent listed a property below what the listing agreement required or refused to show a higher bid because it would take longer to close, then the agent would be liable. If a buyer's agent never bothered mentioning the idea of getting a property inspected and it turned out to have defects, then the buyer's agent might be held liable.

Special Agent

A special agent has *very limited authority*. Usually, a special agent is only authorized to work on one specific task and often for a limited amount of time. If a property owner authorizes a real estate broker to sell two houses, the property owner has employed the broker as a special agent. The authority of the broker is restricted to the two houses and it ends when the houses are sold. A real estate broker who is hired to represent a property owner in negotiating a property dispute is a special agent since the authority of the broker is limited to the one negotiation.

A real estate agent working for another real estate agent (the primary), who assists that primary agent with a real estate transaction.

A subagent is.... - A person who acts on behalf of another. - A real estate agent who takes over the contract when the primary agent is unable to continue acting as an agent - A single real estate agent employed to represent both the buyer and seller in negotiating the property transaction. - A real estate agent working for another real estate agent (the primary), who assists that primary agent with a real estate transaction.

Transactional/Facilitational

A transactional broker, sometimes called a facilitational broker, is *a broker who does not represent any individual in the transaction*. Transactional brokers, at first glance, appear to be the same as dual agents. Transactional brokers work with both parties in a transaction to help create the sale. The *major difference is that while dual agents represent both parties transactional brokers represent neither*. Transactional brokers are not agents and therefore do not have to abide by the ethical requirements of agents, such as confidentiality and loyalty. The purpose of a transactional broker is to prepare the paperwork necessary to actually sell a property. For this reason they are similar to a real estate lawyer (while not being a lawyer) in that both provide nearly the same service. Compensation for transactional brokers is almost always less than that for agents (either buyer or seller agents). In most cases the broker will charge a flat fee or a small commission such as 1% to 2%. *Oregon law does not allow transactional brokers*. All persons engaging in the business of real estate for compensation are agents and are therefore held to the ethical standards of agents.

Universal Agent

A universal agent is *an agent who is authorized to act for the principal in all, or nearly all, circumstances*. Universal agents have very little limitation on actions they can take. This kind agency relationship can include broad ranging power-of-attorney arrangements, especially durable power-of-attorney where the agency relationship is designed to allow an agent to act for a person who is disabled or incapable of making decisions. For example, someone who is in a serious car accident hires a lawyer to manage his affairs. This agreement includes representing the injured person in all financial and legal situations. The lawyer is set up as a universal agent due to the nearly unlimited authority granted to the lawyer with virtually no time limit.

Actual Athority

Actual authority is authority that has been knowingly conferred by a principal onto an agent. The principal and the agent have to be aware of the authority that has been granted in order for it to be considered actual authority. Under the laws of agency, actual authority may be either expressed or implied.

Agency

Agency is a legal relationship wherein one person represents another. A certain amount of authority is conferred upon the person representing the other person or group. The authorizing person or group takes an amount of legal responsibility for the actions of the person being acted through. Not all agency relationships are set down by contractual arrangements, which can have dramatic ramifications.

Ethical Concerns in Agency Relationship

Agency relationships carry with them a certain amount of ethical concerns. Sociologists sum up these concerns with a concept called the Principal-Agent problem. Roughly stated, the principal has desires that he wants the agent to fulfill. The agent also has desires that he wants to fulfill. It is inevitable that, at some point, the desires of the principal and the desires of the agent will clash. There are laws that dictate the minimum standards to which agents must perform, such as the fact that real estate brokers must present every offer to the seller. There are also laws that dictate rough outlines of how agents should behave, such as the fact that agents are required to act in good faith. As a broker you represent a client who is trying to sell property. Your client's goal is to sell their property, preferably for the highest price possible. Your goal is also to sell the property for the highest price possible. The primary conflict comes about when people consider low value bids. Low value bids can be more beneficial to your client than they are to you in situations where the financial penalty for waiting for a higher bid (and thus keeping the house longer) is much greater for the client than it is for you. You miss out on commission now and must spend some time and money advertising. The client, on the other hand, has to continue paying the monthly costs to maintain the property. In this area, your two interests begin to diverge. On the other hand, as a real estate broker, you may consider the extra time and expense of advertising less profitable than a quick sale, after which you can move on to other properties. In this situation, the broker may counsel acceptance of a low-ball offer when it would serve the client's interests more to wait for a better offer. This is just two examples of how the principal-agent problem can arise. The existence of this problem means that you, as an agent, need to be vigilant for cases where you are putting your own interests above your client's. As a broker, you have a lot of power in the relationship. You can choose the wording on listings, you can choose when to schedule meetings with potential buyers (scheduling someone late in the evening can lead to everyone being far less inclined to sit and negotiate), and choose which properties to show your clients (as a buyer's agent). These choices have to be made, and there are almost always good reasons for choosing one over the other. You need to ensure, however, that the reasons you choose are the right reasons, i.e., those the client would have chosen if they had the same level of expertise and access to information.

No Profit

Agents are vested with a lot of power and authority over the principal's assets. The agent is forbidden from using their position to profit themselves, especially at the expense of the principal. This does not mean that agents cannot be paid. Agents are compensated for their work as agents and they are allowed to negotiate with the principal over what form of compensation they will receive. When representing the principal, the agent is barred from making decisions which will specifically benefit the agent. There are three basic exceptions to this rule. The first is that the agent is allowed to derive a profit in a manner prescribed by the contract. For instance, in real estate sales the broker makes a commission off the purchase price. The broker is legally allowed to receive the entirety of this commission even though the broker's actions as an agent will determine how much that compensation will be. Second, the agent can make a profit if it is secondary to an action that is designed to make a profit for the principal. For instance, in real estate a seller's broker is allowed to accept a much higher price than the principal originally intended even if it comes with a stipulation that the broker be paid more (such as in the case where the buyer has no broker). The third situation in which a profit is acceptable is if the agent discusses and receives permission before attempting to gather the profit. An agent may invest the principal's money into a business the agent runs if the agent and the principal discussed the idea, the agent was entirely forthcoming about the investment, and the agent invested only what the principal agreed to. This of course only covers the specific situation discussed. If an agent convinces a principal to invest $10,000 in a start-up company then that is not a violation. If the agent later invests an additional $5,000 without consulting the principal then that would be a violation. Regardless of how the agent acquires a profit, even if it is accidental, the agent is required to let the principal know about the profit and the circumstances surrounding it. If the agent didn't have prior permission to gather the profit then the principal has the option to require that the profit be turned over to the principal.

Legal Relationship

An agency relationship is a legal relationship, in that there are legal consequences to such a relationship. An agent acting for a principal party is legally considered an extension of the principal party. Since most agency relationships are established by contractual agreements, they have legally enforceable elements that are binding to both principal and agent. Even without contractual agreements, a principal can be held legally responsible if a situation created an agency relationship or extended the scope of an already existing agency relationship. Furthermore, the duties of an agent acting for a principal party have to be legal in nature. An agency relationship is not valid if it involves the trafficking of illegal narcotics, for example.

Estoppel

An agency relationship that is established by estoppel occurs when *a third party reasonably believes, and has relied on the idea, that an agent has acted on behalf of a principal even though no such agreement existed*. This is usually invoked to protect third parties that are damaged or will be damaged when it is made clear that the agent was acting outside the agency relationship with the principal. Estoppel agency relationships can result if the principal willfully or mistakenly fails to detail the scope and limits of an agent's authority. This is very closely related to the concept of apparent authority. It is important to note that agency by estoppel can only exist if the agent had some authority, to begin with. In other words, a scam artist cannot begin pretending to be selling a house and then have the sales be legitimized. Agency by estoppel generally functions when a third party rightly knows that an agent has authority from principal, that agent acts outside of their authority, and the third party relies on it. The clearest example of this rule is that if an employee (who is an agent of the company) breaks the law and the employee code of conduct then the company can be held liable. However, if someone steals products and sells them, the manufacturer cannot be held liable because there was no agency relationship. The agency relationship can be created by ratification. If a salesman is pretending to be an agent of a company, the company is made aware, and the company does nothing about it then they have created an agent relationship by ratification and the company becomes liable for whatever the salesman does through agency by estoppel. An agent who acts outside their authority has committed a breach of their fiduciary duty and so the principal can attempt to recoup their losses from the agent.

Contract

An agency relationship that is set up by a contract is one where *the principal and agent agree that the agent acts for the principal*. The authority of the agent is clearly specified and the duties of the agent are laid out in a legal document. Most often, significant agency relationships will be set up by contract in order to protect the principal should the agent act in a way that has legal consequences for the principal. By clearly specifying the nature of the agent's responsibilities and authority in a legal document, the principal can avoid many situations where he or she could be held responsible for harmful or illegal acts taken by an agent. An employment agreement is a form of agency set up by contract. In this case, a business owner is establishing the person as an agent of the company with specific duties and responsibilities. In real estate, agency that is set up by contract usually involves engaging the agent to achieve a certain outcome without specifying all the steps required to achieve that outcome, such as a listing agreement where a property owner authorizes a real estate broker to act on his or her behalf to sell the property without needing to assign or approve of every task undertaken in that effort.

Agent

An agent is *the person or organization that the principal acts through*. An agent carries out tasks and actions as directed by the principal person or organization. The agent is given some measure of authority to act for the principal that he or she represents. Since the agent is an extension of the principal, the principal is held, at least partially, responsible for what the agent does while acting as an agent.

Loyalty

An agent is also expected to be loyal and faithful to a principal. This precludes gaining extra compensation from third parties for services rendered without the permission of the principal. Being loyal also means that an agent cannot act as an agent for another party without the principal party's permission. Agents are not allowed to share secret or proprietary information about the principal's business for personal gain. An agent should not compete with the principal in regards to areas that are covered by the agency relationship. There is also an expectation that an agent will keep the principal fully informed since the principal can be held responsible even if the principal was given incomplete information. It is important to note that loyalty does not obligate an agent to cover for dishonest or illegal instructions assigned by the principal.

Accounting

An agent is expected to keep track of, and account, for all money, property, and other valuable resources that are received and spent by the agent when acting as an agent for the principal. This requires that an agent keep detailed records for the entirety of the time spent as an agent. Money that belongs to another person cannot be used by the agent for personal use. Intermixing or commingling money held for other people with an agent's operating or personal accounts is forbidden.

Performance and Obedience

An agent is primarily responsible for effectively carrying out the duties assigned by the principal as specified by whatever contractual agreement establishes the agency relationship. This cannot be avoided by delegating duties to another person. Furthermore, this includes an expectation that the agent will obey any reasonable and lawful instructions from the principal.

Agents and Principals

An agent is roughly understood as an individual who represents another. In ORS 696 an agent means a real estate broker or principal real estate broker who has an agency agreement with a customer, specifically listing agreements, service contracts, and disclosed limited agency agreements. Additionally, a licensed individual who has been contracted to work as the agent of a real estate broker or principal broker is also an agent. A principal is simply an individual who directs an agent to work on their behalf.

Common Law Principles and the Law of Agency

Common law refers to *a judicial system where court decisions are based more on the earlier decisions of other courts rather than legislation*. This establishes a precedent that the court uses to determine the proper ruling in a case. The hierarchy of courts means that a common law decision made in a higher court is binding to, and can even overrule the judgment of, a lower court. Common law practices *give courts the ability to interpret the meaning of a law or even make a ruling in the absence of established statutes*. Common law practices originated in England and the original concept was that legal decisions should reflect the common practices of the people who were subject to the court's decision. This evolved into a more unified system that was then exported to the American colonies. The common law system became a significant foundation for the American legal system used today. The principal most often employed in the common law application of the law of agency is "he who acts through another, acts himself." This means that a principal is considered to be acting even when represented by an agent. More importantly, this means that the principal is responsible for the actions of an agent. The principal is the party who is acting and is thus responsible even if the action was carried out through an authorized agent.

Termination of Agency

Depending on the contract that established the agency relationship, an agency relationship can usually be ended at any time. The principal party can revoke the agent's authority for nearly any reason including situations where an agent is acting recklessly or negligently and threatening the principal with legal ramifications. Death, bankruptcy, or incapacity of the principal can also be causes for a termination of an agency relationship. An agency relationship can have a specified time frame to it. If the agency relationship is only for one transaction, the relationship ends when the transaction is completed. If a property owner employs a real estate broker as an agent for selling houses for a year, a new agency relationship will have to be created at the end of the year since the original agency relationship is terminated after a year. Depending on the situation, and the contract that established the agency relationship, an agent can sometimes voluntarily withdraw from an agency relationship, thus terminating the agency relationship. If the principal violates the agency relationship contract, the agent may be allowed to withdraw from the agency relationship.

Disclosed Limited Agency Rules

Disclosed limited agency agreements have a high potential for misconduct, either accidental or purposeful. The Oregon Real Estate Agency lays out a number of rules regarding these relationships in order to mitigate this potential for misconduct. Disclosed limited agencies can only be established by written agreement. This means that if a broker is already representing a seller and then wishes to represent the buyer, the broker cannot do this until and unless the seller signs an agreement to engage in a disclosed limited agency agreement. In order to facilitate this fact, whenever a person contracts an agent from a brokerage they must sign a disclosure of limited agency with the principal broker. This allows the business to take on other clients without having to gain prior approval from the existing clients. The Agency defines a transaction with more than one buyer as one in which two or more buyers have submitted offers to purchase on the same property. This means that representing two buyers who are interested in the same property is not enough to trigger a dual agency situation. Both buyers must present offers for it to become dual agency. It is best, if you are representing two buyers who are both interested and one sends in an offer, to discuss with them the idea of dual agency. Principal brokers are in charge of supervising licensees under them and ensuring that they follow all laws. In order to ensure that dual agency relationships are conducted in a legal and ethical manner the principal broker must take care that the licensees who represent two different sides of the same transaction do not have access to confidential information about the other side. Finally, if a brokerage has two principal brokers then both are dual limited agents of both parties. This can be avoided if the principal brokers have a written agreement to divide control and supervisory duties so that each is only in charge of one side of the transaction and the records for each are kept separate and secured from the other party.

Implied Authority

Implied authority is authority not specifically granted to an agent but assumed to be necessary to carry out duties related to any expressed authority. Someone has implied authority if an expressed authority could not be reasonably utilized without some unspoken authority to carry out a necessary action. The reason that this is still considered actual authority, even though the authority was not expressly granted, is that both the principal and agent have de facto agreed that the implied authority exists since, without it, the expressed authority and duties of the agent cannot be carried out. For example, a property owner sets up an agency relationship with a real estate broker that specifies that the broker is given authority to purchase property for the owner. The broker, as agent, also has the implied authority to meet and negotiate with other property owners since that duty is needed if the broker is to carry out the interests of the property owner. The broker cannot effectively purchase property, the expressed authority, without being able to meet and negotiate with other property owners.

Duties of Real Estate Licensee

In a real estate transaction the state lays out a number of duties which the agent is required to fulfill. There are duties which sellers and buyers of real estate have as well. A licensee has a duty to inform their principal of their duties and rights under the law. The duties of the seller include not acting as an agent and submitting an accurate property disclosure form. This disclosure form is designed to reveal all material facts concerning the property. The form must be submitted to the buyer. The buyer has the right to withdraw an offer at any time, for any reason, without forfeiting any of the earnest money. This right exists right up until the point when the seller gives the buyer a property disclosure form. This is to protect the buyer so that they can choose to withdraw their offer after discovering some flaw. Once the disclosure has been delivered to the buyer, the buyer has five days to withdraw their offer to purchase. The buyer cannot sue for non-disclosure of property issues if the seller never delivers a property disclosure form. Licensees need to make sure that buyers are aware of this fact and only purchase a property with no disclosure form after a thorough inspection. ORS 696.870 may seem contradictory. Section (2) says that a licensee who completes section (1) has no further duties while section (3) says that licensees have the duties under ORS 696.805 to 696.815. Section (2) states "under this section", which means that ORS 696.870 doesn't impose a duty to inform sellers or buyers of their duties and rights not covered under ORS 105.462 to 105.490 and 696.301. Additionally, section (3) uses the phrase "Notwithstanding" which is a fancy way of saying "in spite of" or "regardless of." This basically goes onto say that while the agents don't have to inform sellers and buyers of their additional duties and rights, they are still bound by ORS 696.805 to 696.815.

Disclosed Limited Agency Agreement

In order to ensure that limited agency agreements are conducted correctly, the Real Estate Agency has, by rule, stipulated the requirements for disclosed limited agency agreements. These agreements must be in writing, and be signed and dated by the parties (or their agents) in the transaction. The disclosed limited agency agreement: - *Contain the name of the representative*, i.e., the name of the brokerage or the name of the principal broker. - Any already existing agreements, such as listing and service agreements, that the different parties are already engaged in. - Name of all the licensees which will be representing the various parties (including the principal brokers who are overseeing the licensees). - A description of the requirements in ORS 696.815 written in plain english and a full disclosure of the responsibilities of a dual agent. - Must include consent from the parties concerning their representation in further transactions. The requirement to disclose duties can be fulfilled by discussing the agency disclosure pamphlet. A broker or principal broker can sit down with the clients and, using the pamphlet as reference, discuss what the duties are and how they are fulfilled. The pamphlet will need to be included in the agreement by reference. The last part of the rule is a sample disclosed limited agency agreement. If the licensee uses a form that is substantially similar to the one presented in the rule, then it is "prima facie" evidence that he or she has complied with the legal requirements. "Prima facie" is a legal term meaning "at first appearance." What this means is that the fact that such a form was presented and signed is enough evidence, all by itself, to show that the licensee has complied with his or her responsibilities. It is possible for the Commissioner to dispute this evidence showing, for instance, that the licensee didn't fully explain the duties or was misleading when describing the relationship.

Dual Agency

In some areas, a single real estate agent can be employed to represent both the buyer and seller in negotiating the property transaction. The real estate agent is not the exclusive agent of either party, but represents the interests of all parties involved. Often this kind of agency relationship requires written permission from the parties. There are usually specific state rules and regulations that require that the written consent contain certain conditions to ensure that the dual agent will act equitably and fairly.

Designated Agency

In some cases, a single real estate brokerage firm is employed to handle both the buying and selling sides of a property transaction. Two real estate agents can be chosen to represent each side. The real estate agents enter into specific agency relationships with the buyer and seller. The real estate agents are said to be designated agents representing the sole interest of either the buyer or seller and are expected to respect the fiduciary relationship that comes from being an agent of either the buyer or seller. In this case, the two brokers will each be designated agents but the principal broker will be a dual agent of both parties. Remember, brokers are agents of the principal broker.

Acknowledgment of Existing Agency Relationships

It is important that all parties know who the principals are, who the agents are, and whom the agents represent. To accomplish this end, the state mandates that all offers to purchase include an acknowledgment of all existing agency relationships. When submitting the offer, the buyer must acknowledge any relationships. When responding to the offer (either accepting or rejecting), the seller must acknowledge any relationships. All agents need to ensure that these signatures are present and incorporate them into the document. In general, offers to purchase will have an acknowledgement of the relationship at the beginning of the document. The information that must be on the acknowledgement is set by the Oregon Real Estate Agency and contained in OAR 863-015-0200.

Duties to the Tenants

Property management is also unique in that it involves far more parties. In addition to the property owners, property managers must deal with the tenants of the property. Depending on the type of property being managed, there may be only one tenant or hundreds. The property manager has duties that are owed to the tenants. The property manager is not an agent of the tenants and so does not have the same duties an agent would have. Instead, the property manager has duties which revolve around acting in a fair, equitable, and legal manner in regards to property management. The property manager has to make sure that all tenants are treated equally, that tenant concerns are addressed, and that any money received from the tenants is taken care of. The most important duty property managers have towards tenants is to follow the law. There are many rights that tenants possess and many Oregon laws that govern landlord-tenant relations [Oregon is widely considered to be a very tenant-friendly state with regard to landlord-tenant law and the adjudication of those laws]. The property manager is responsible for understanding all laws and following them. Furthermore, the property manager not only needs to follow the laws in his or her conduct but needs to ensure that the property owner is also following the law. For instance, if a property owner says, "I don't want any gays living here," you are legally obligated to *not* adhere to that request. You are obligated to tell the landlord that state law prohibits any discrimination based on the sexual orientation of a person. Your duty of loyalty to the landlord requires that you inform the landlord when their proposed actions could lead to litigation or is in violation of federal and state law.

Duties Owed by Dual Agents

Real estate brokers and principal brokers who represent both the seller and buyer in a single transaction, two or more buyers in a single transaction, or are the principal broker in a brokerage that represents such parties, are considered to be dual agents. Remember, limited agents owe some duties to all parties (honesty, disclosure, communication). Dual agents have more than one principal, so the duties owed to these principals are more complex. The agent has the standard duties common to all agents (reasonable care, accounting, loyalty, referral, confidentiality) and he or she owes these duties to ALL principals. In the situation where two parties in a transaction are represented by different brokers in the same brokerage, only the principal broker shall be considered a dual agent and the other brokers shall be the seller's and buyer's agents, respectively. All parties involved in this transaction must disclose their conflict of interest to all parties, in writing. For instance, the broker representing the seller must disclose that he works at the same brokerage as the buyer's agent, who must do the same. The principal broker must disclose that she oversees both the seller's agent and the buyer's agent. All parties are required to refrain from taking actions which will unduly harm one or the other party. This doesn't prevent a seller's agent from demanding a higher price, for instance, but rather from discovering how high the buyer is willing to go and then telling the seller. All parties are required to follow all lawful instructions of both parties. This doesn't mean that the seller's agent needs to start showing properties but rather that the seller's agent cannot ignore lawful requests from the buyer (though he can refer the buyer to the buyer's agent). The dual agent is prohibited, except with express written permission, to reveal any confidential information or that one party is willing to accept different terms than they offered. For instance, if the buyer offers $350,000 for a property but has expressed that she is willing to go as high as $450,000, the agent is barred from telling this to the seller. However, if the buyer tells the seller, in writing, to reveal that she is willing to offer up to $400,000, the agent is required to communicate this (but no other) information. This is what makes dual agency difficult. Dual agents will often know how much each side is willing to budge and they may wish to influence the final price either to gather a higher commission or close faster. Dual agents however cannot do this and therefore their ability to assist principals in negotiations is limited.

Duties to Clients and Customers

Real estate needs to be focused on customers first and foremost. One of the major advantages of Realtors is that their code of ethics allows them to show how they are better than real estate brokers that do not have such a strong code of ethics. The code of ethics that customers care about the most is the one that applies to them, and thus this first section of the code is vital to a solid and actionable code of ethics. Many of the ethical guidelines imposed by this and other codes of ethics will replicate legal requirements. In such a case the code of ethics reinforces the law and often holds the Realtor to a higher standard than the law.

Real Property and Sales

Real property is an estate in land. Real property includes condominiums, timeshares, the physical structures built on the land (provided they are owned by the landowner), and an option or right of first refusal on land. This specifically excludes leaseholds. A leasehold, which is commonly referred to as a lease, is when an individual is given the right to occupy and utilize a piece of real property for a specified period of time. It is important to remember the distinction between "real property" and "real estate." *Real property* involves the *ownership of land* (and physical structures built on the land) whereas *real estate* involves *the use of land* (and said physical structures). For instance, leaseholds and licenses to use land are not real property because they are not focusing on the ownership of the land. However they are real estate because they focus on the use of the land. Real estate activities cannot be performed by non-licensees however, this section of law deals with the transfer of ownership and therefore real property. A real property transaction occurs when real property trades hands. For the purposes of ORS 696 the term "real property transaction" refers only to transactions wherein one or more of the principals are acting through an agent. If both the buyer and seller are not acting through an agent then their relationship is not covered under ORS 696.800. The terms sale and sold are used interchangeably and refer to a transaction to transfer of real property. This includes both the actual exchange, whether directly or through an intermediary (like an escrow), and the contract to conduct the exchange (or the land sales contract).

Assisting Client is Paramount

Realtors® need to make sure that they are doing whatever is necessary to help their client navigate the transaction. Realtors® need to make sure that, in a dual agency relationship, both parties are completely aware of and consent to the relationship. A Realtor® representing a seller/landlord (owner) needs to submit all offers and counteroffers as quickly as possible and continue transmitting all offers until either the transaction closes or the owner asks, in writing, for the Realtor® to not submit these offers. For Realtors® representing buyers/tenants (purchasers), they shall submit all offers and counteroffers as quickly as possible but they do not need to continue showing properties after an offer has been submitted unless the purchaser requests, in writing, to continue seeing properties. In both cases, the Realtor® must recommend that the client seek legal counsel before terminating an offer to purchase that does not allow free termination. Realtors® are bound by the same legal guidelines as other real estate licensees regarding confidential information. The code of ethics has two specific changes. The Realtor® has a duty of confidentiality not just to principals but to any clients. Furthermore, the Realtor® should reveal confidential information if it is necessary to prevent a crime that the client intends to commit or when it is necessary to defend the Realtor® or Realtor®'s business associates in court. Realtors® engaged in property management must regard the rights, safety, and health of both tenants and others who are staying in the property legally. These Realtors must also make reasonable efforts to protect the property from foreseeable losses.

Limited Agent

Seller's brokers have a wide variety of tasks they assist property owners with. They will set up a listing, negotiate with buyers, process paperwork, contact any experts required, and make sure that the sale concludes properly. Some clients, however, wish to take care of some of these tasks themselves. These property owners could attempt a For Sale By Owner, but there are other options as well. For owners that want some, but not all, of these services they can contact a limited agent. A limited agent is *a broker who only performs some of the standard tasks*. The limited agent does represent one party and so they are actually an agent, just one with a much smaller scope of authority. The most common form of limited agent is one who acts only as a listing agent. This agent will post the property onto the MLS and will direct communication to the property owner. This limited listing agent will not negotiate for the property owner, prepare paperwork, or help clear up the rules regarding real estate sales. Generally, a limited service broker will charge a flat fee to post the listing. An average fee is $300, though, as with commissions, the actual amount will vary by broker. Some states have created laws requiring real estate professionals to provide certain minimum services to clients and thereby ban limited service brokers. The DOJ has challenged a number of these rules (see U.S. v. Consolidated Multiple Listing Service, Inc.) claiming that they are anti-competitive and in violation of antitrust laws. The debate is very much alive with a number of Realtor Associations currently lobbying against limited service brokers in several states. Under Oregon law, real estate licensees are required to fulfill all of the affirmative duties listed under ORS 696.800 through ORS 696.890. These affirmative duties cannot be waived. A broker who lists a real estate property for sale must transmit offers to the seller and must disclose material facts known about the property to the seller and buyer. There is one affirmative duty which can be waived, and that is the requirement that the agent must attempt to find a buyer (or seller if they are a buyer's agent) for the property. This means that a brokerage could act as a limited broker provided that it transmitted all information to the principal, maintained loyalty, and otherwise fulfilled the duties required under Oregon law.

Operation of Law

Termination by operation of law means that *the contract is invalidated through some form of legal action*. There are many reasons why this could happen. The contract may be illegal, the broker may lose their license, or the state may make an equity judgment in which the agreement is dissolved. The most common way for a contract to be terminated by operation of law is if the contract is found to be an illegal contract. For instance, in Oregon, a contract that offered to rebate a portion of the commission to the seller, or a listing agreement with no expiration date, would both be illegal and therefore would be terminated by operation of law as soon as someone challenged the contract.

Types of Laws and Regulations

The constitution is the highest law of the land and any other law which contradicts the constitution is superseded by the Constitution. The second type of law is statutory law. Statutory law is created by the legislative branch. Statutory law is the second highest type of law, just under the constitution, and all other forms of law are only applicable in statutory law. The third type of law are administrative regulations. Administrative law, also called administrative rule, is created by the executive branch. This law is set forth by various agencies and is subordinate to both statutory law and the constitution. Administrative law is quicker to approve and more specific than statutory law. However, administrative regulations must fall within limits that are set by statute, and generally require public hearings before taking affect. Also in this hierarchy are state laws, state regulations, local laws, and local regulations, in that order of descension. State law cannot overrule federal law except where the Constitution has granted regulation to the states (the "reserve" clause of the Constitution that says powers not specifically granted to the federal are under the purview of the states).

Termination by Acts of the Parties

The final way in which a contract terminates is if one, or both, of the parties chooses to end the relationship. Many contracts will have clauses allowing a way to cancel the contract. For instance, a listing agreement will usually have a provision that allows the property owner to decide to stop selling their property. This would be a termination by act of the principal. According to Section 158 and 159 of the Contract Act of 1950, an agent's authority can be terminated at any time agreed by both parties. Also, the Sections state that if the trust between the agent and the principal has broken down, it is not reasonable to allow the principal to remain at risk in any transactions that the agent might conclude during a period of notice. Alternatively, the broker could have a property owner who insists that the broker violate fair housing laws. The broker may be forced to terminate the contract rather than risk the liability that comes from discriminatory housing practices.

Services Provided to Sellers

The major service that a real estate agent provides to a seller is finding qualified buyers who are willing and able to purchase the property. This can involve publicly listing the property for sale, advertising the property, organizing open houses and showings of the property, and screening potential buyers to determine if they are qualified to purchase the property. Furthermore, the broker can assist the seller with important forms and paperwork that may need to be filled out. Sometimes the broker may even hold money from the buyer until the closing. Aside from working on real estate transactions, brokers can also draw up estimates of a property's worth based on methods that include comparative market analyses (CMA). A real estate broker may additionally be hired to do property management.

Completion

The most common way that real estate agency relationships end is through completion. As we discussed before, special agency relationships only apply to specific circumstances, such as selling a property. Once that activity has been completed, the agency relationship is terminated. The agent can still be held liable for actions completed while under contract but discovered after the end of the contract. Additionally, even after completion, it is a good idea to maintain contact and hold brokers to the same ethical standards as when they are under contract. For instance, if an individual buys a house through an agent and then, six months later, discovers a problem with their title they may call the buyer's broker to ask for help. While the broker is out of contract it is good business practice to offer assistance to the buyer, such as helping her contact a lawyer that can help clear the title.

Responsibilities of the Parties and Termination

The parties that are involved in an agency relationship have certain responsibilities to carry out. Agents are responsible for doing certain tasks on behalf of a principal, and a principal has certain responsibilities to any agents. Both principals and agents are responsible for carrying out certain duties in regards to third parties. These responsibilities are crucial to the functioning of any agency relationship. Depending on the contract that established the agency relationship, an agency relationship can usually be ended at any time. It is important to note that these duties do not apply to negotiation over the agency contract. Agents represent the principal to the outside world and the agent and principal are therefore held to exacting standards of ethical conduct. When negotiating over the agency contract the agent represents only himself or herself and the principal likewise is not represented by anyone else. This applies even if an agency agreement is already in effect (i.e., if an agent wishes to renegotiate a contract). Additionally, this means that the terms of the contract are not subject to the agent/principal requirements. An agent is required to obey the principal. If a contract says that the agent will be paid $50 an hour for all work then the principal cannot command the agent to work for free as that would be a contract negotiation, and the agent is therefore not an agent for this conversation. Likewise, if the contract specifies certain authorities and the agent acts outside of these authorities that would be a violation of the contract and the principal's duty to indemnify the agent does not hold. There are of course limitations to the contractual relationship. The contract must be a valid contract and therefore cannot, for instance, require the agent to perform illegal actions nor can it violate any restrictions imposed by law.

Nature of the Principal / Agent Relationship

The relationship that is formed when a person or organization becomes an agent of another person or organization is primarily a relationship of trust, often referred to as a fiduciary relationship. At the same time, an agency relationship can be legally enforced especially when the relationship was established by some kind of legal contract.

Agency Disclosure Pamphlet

The rules governing agency relationships are both important and complex. People who have never been trained in real estate can have many misconceptions about what an agency relationship means. In order to correct this problem the state mandates that licensees provide potential clients with a pamphlet that describes how the agency relationship works. By state law there are two primary provisions concerning this pamphlet. The first provision is that the pamphlet is in no way intended to create an agency relationship. A real estate broker who attempts to create an agency relationship with a person they know to be already represented can find themselves in trouble as could a broker who has a conflict of interest. The state law ensures that this mandatory pamphlet cannot be construed as an ethical violation. The other important provision is that this document must be given out as soon as possible. Whenever an agent first makes contact with an individual, through any means, he or she needs to provide this disclosure. The Real Estate Agency is given authority to determine exactly how the pamphlet is delivered and what must be in the pamphlet.

Expiration

The second most common way that an agency relationship ends is through contract expiration. In Oregon, it is required that all listing agreements have an expiration date. Once this date passes, the contract is over and the broker is no longer an agent of the client. If the contract has not been completed then you will want to work with the client to renew/reissue. It is better to renew (get a new contract before the old contract expires) than to reissue (get a new contract after the old contract expires) When setting expiration dates for the contract, make sure they are reasonable. Six months is a standard length for a listing contract though it can be shorter or longer depending on the situation. If a customer will be leaving the country for nine months and wants you to sell their property while they are away then you will need a listing contract that lasts at bare minimum nine months, though ten or twelve months might be better.

Duties Owed to All Principals

There are three duties that all real estate agents have towards all principals. This means that, even if you are a seller's agent, you owe these duties to the buyer and any agents involved in the transaction. An agent must deal honestly and in good faith. This designed as a catch-all to ensure that the agent act in an ethical and upright manner. It is difficult to list all of the various ways in which people have treated each other badly in the past. Worse still, people are constantly finding new ways to mistreat each other. This duty ensures that agents can be punished for any misconduct and bad behavior even if it isn't specifically listed in the laws and rules. Real estate agents are required to present all written communication directed either to their principal or from their principal, in a timely matter. Brokers cannot choose to withhold an offer to purchase, for instance, even if that offer is contingent on the broker compensation being reduced. Real estate agents need to disclose any "material fact" they know. The exception to this is if the party already knows the information or it is apparent to them. For instance, if the broker learns that the building has dry rot in the rafters, he must inform the parties. However, if the broker learns that the front door is only hanging on one of its hinges, he does not have to tell them as it is completely apparent. This example assumes that the parties have regular and/or easy access to the property. The fault with the door would not be apparent (and therefore must be disclosed) to a party that is in another state. Additionally, Oregon law stipulates that certain fact are not material facts and therefore do not have to be disclosed. - You do not have to disclose that there was a death in or near the property. - You do not have to disclose that either the property or a nearby property, has been the site of activities (whether legal or illegal) unless those activities affect the physical condition or title of the property. The fact that the neighbors like to party until 3am is not a material fact, but if the previous owner committed fraud and there is a judicial lien against the property to repay court fees that would be material. - You do not have to disclose if a person who lived in or near the property suffered from HIV or AIDS. - You do not have to disclose that the neighborhood contains a registered sex offender. - You do not have to reveal that a nearby property has been determined to be not fit for use because it was used to produce illegal drugs and has been contaminated. It is important to remember that per ORS 696.800 non-material facts are confidential unless the agent is directed to disclose. This means that if you learn that one of the previous conditions exist on the property, you are legally barred from revealing that information to the side of the negotiation you do not represent

Realtors have an ethical hotline that can help them resolve ethical issues before they become legal issues

What is one of the major benefits of belonging to the NAR? - Realtors do not have to follow a code of ethics. - Realtors get paid higher commissions than non-Realtors. - The Oregon Real Estate Commission will levy much smaller fines against Realtors than non-Realtors. - Realtors have an ethical hotline that can help them resolve ethical issues before they become legal issues.

Disclosure of Agency Agreement

When a broker or principal broker first makes contact with a customer the (principal) broker is legally *required to provide an "initial agency disclosure pamphlet."* This pamphlet is a document that explains what an agent relationship is, what the duties of agents are, and how an agent relationship can be created. In order to establish agency relationship both the agent and the principal need to sign an agency agreement. Once this has been signed the broker becomes the agent of the client. On all official real estate documents where a broker is acting as an agent there must be a disclosure of agency agreement section. This section is usually at the very top of the form and it affirms who is an agent of whom. This makes sure that all parties to the transaction understand exactly what is happening and where everyone's interests lie.

Services Provided to Buyers

When a real estate agent works with a buyer, the agent provides a few different services that assist the buyer with purchasing a piece of property. The agent primarily looks for real estate that matches the requirements, needs, and wishes of the buyer. This includes looking for real estate that fits with the buyer's budget while matching the size and location requirements of the buyer. The agent may also take a buyer to look at prospective properties.

Duties to the Landlord

When a real estate broker acts as a property manager, that broker is an agent of the property owner. This means that the broker has all of the standard duties that come with being an agent. The broker needs to make sure to obey the lawful commands of the property owner, keep an accurate accounting of the monies received, and disclose any conflicts of interest. The relationship between property manager and landlord has some differences from the relationship between sales broker and property owner. The major difference is in the amount of authority a property manager has. A sales broker who is working with a property owner will need to get them to personally sign all of the offers and the other documents. A property manager, however, is authorized to sign such documents as rental agreements. Property managers have great discretion in deciding who will and will not be acceptable tenants. Often, the landlord will set out some requirements, such as minimum rent, amount of people allowed in the building, and visitor policies. As long as these requirements are legal then you need to enforce them.

Obligations of a Real Estate Agents

When acting as an agent there are certain duties and obligations that must be followed. ORS 696.805, ORS 696.810, and ORS 696.815 cover the duties and obligations which the various types of agents have. Most of these duties are similar across the three types of agents (seller agents, buyer agents, and dual agents) but there are some important differences. A note on "affirmative duties." An affirmative duty is an obligation to do something. The opposite of this is a negative duty, which is a duty to not do a thing. For instance, a parent has an affirmative duty to take care of their children. Failing to do this is an ethical and legal violation. People have a negative duty to refrain from taking other people's children. Committing such an act is an ethical and legal violation. The agent duties listed in these laws are all affirmative duties, that is, they require the agent to perform an action. The affirmative duties of the agent cannot be waived (with exception of the duty to find a buyer/seller). This means that even if the listing agreement says that you do not have to reveal material facts, you are still legally obligated to do so as no legal contract can absolve you of these duties.

Operation of Law

A contract terminates because the agent neglected to file all of the necessary legal paperwork would be what kind of termination? - Destruction of the Property - Completion - Operation of Law - Acts of the Parties

Fiduciary Relationship

A fiduciary relationship is one in which someone puts *complete trust in another person in regards to handling some kind of important task or tasks, usually of a financial nature*. An agency relationship is a fiduciary relationship because the principal party has to put complete faith in the agent that is representing, and acting for, the principal party. By investing the party that is acting as an agent with authority over some portion of the principal party's affairs, the principal party is expecting the agent to act in the principal's interest. This can also be seen as the "good faith" that supports the agency relationship. A property owner in an agency relationship with a real estate broker is somewhat vulnerable and reliant on the broker's expertise. There is an expectation that the broker will act in the owner's interest and not violate the trust the owner has in the broker.

General Agent

A general *agent has more limitations on the actions that can be taken on behalf of the principal*. This kind of agent is often limited by time or is limited to a specific area. A property owner who sets up an agency relationship with a real estate broker but limits the duties of the broker to buying and selling properties in one city has employed the broker as a general agent. A person who is hired as an apartment manager but whose contract with the property owner ends after five years could be said to be a general agent. This is because the manager has general authority but only in relation to the certain type of property and only for five years.

Listing, Offering, and Price

A listing agreement is any agreement where a broker agrees to, for compensation, represent an individual for the purpose of selling the individual's property or finding a buyer for the individual's property. The listing price is the price (in dollars) listed in the listing agreement. An offer is a written statement from an individual proposing that they would like to purchase a piece of real property. The offering price is the amount of money that the buyer wishes to purchase the property for, as stated in the offer.

Liability for Other Licensees

A licensee is not liable for the actions of other licensees except for two cases. If the licensee supervises other licensees, then the supervisor is liable for the actions of those under them. Also, if a licensee participates or authorizes a tort (something that causes harm to another), then the licensee can be held liable. If the agent representing a racist seller let other buyer's agents know that the seller was racist and wouldn't consider any African Americans, then the various buyer's agents would not be liable if the seller did not accept an offer from an African American. The buyer's agent could warn the buyers that the seller was racist, as long as he was willing to submit the offer. If the buyer's agent refused to submit an offer to purchase or attempted to convince the buyer not to offer on the property, then the buyer's agent might be held liable. This would be a sticky situation where the buyer's agent has a duty to warn the customer that they may be rejected and/or suffer abuse for their race while not discouraging them from presenting an offer for the property. The state recognizes that information is not always transmitted accurately between agent and principal. Per state law, it is assumed that any information which has not been acknowledged in writing has not been transferred from principal to agent or vice versa. If there is a defect in the property, it is not assumed that the agent knows this unless it can be shown that the agent received this information in writing (from the principal or an inspection for instance). Likewise, if the agent learns about confidential information, it is not assumed that the principal knows this confidential information unless the agent tells them in writing. The exception to this rule is that principal brokers are assumed to have full knowledge of all facts known by those they supervise. Principal brokers are required to supervise their brokers. Unless it can be shown that a broker purposefully hid information it is assumed that the supervisor knows it.

A contract

A person signs an agreement with a broker to buy real estate. The broker issues an offer to purchase. The principal signs that offer. What was used to create this relationship? - Estoppel - A contract - Ratification - Necessity

Universal

A principal becomes disabled and gives authority to an agent to act on behalf of the principal in nearly all circumstances. This type of agent is... - Special - Unique - General - Universal

Responsibilities of the Principal to Third Parties

A principal is responsible for honoring any contracts that were negotiated and set up by authorized agents. A principal is also responsible for any tort caused by an agent if the principal authorized such an action.

Possible Agency Relationships in a Single Transaction

A single transaction can have a variety of different agents involved. A seller could start by contracting a limited agent to put the property on the MLS. The property owner is then approached by a buyer's agent. After negotiating with the buyer's agent the property owner feels that he is in over his head and hires a seller's agent. The seller's agent that the property owner chooses works in the same brokerage as the buyer's agent. This makes the principal broker of that brokerage a dual agent and both the seller's and buyer's brokers are subagents of the principal agent and designated agents of the seller and buyer respectively. As you can see, the number of agent agreements in a transaction can quickly balloon, and therefore it is vital that you understand how each of the agent classifications work.

Third Party

A third party is *any person or organization that the agent interacts with while acting as an agent for a principal party*. Example, a restaurant owner hires someone to manage the kitchen and gives the manager authority to contract with other companies for food delivery. Any food delivery company that the kitchen manager negotiates with is the third party in this situation. If the manager acts negligently, recklessly, or criminally, third party food delivery companies could hold the restaurant owner partially responsible.

A fiduciary relationship

An agency relationship can be defined as which of the following? - A platonic relationship - A marginal relationship - A fiduciary relationship - A bad idea

Duties Common to All Agents

All agents have the above mentioned "duties to all principals"; that is: honesty, disclosure, and delivery of communications. In addition, all agents have duties they owe to their principals but not to the other parties in the negotiation. All agents must exercise reasonable care and diligence. Real estate brokers and principal brokers are expected to be experts in their field. Agents are expected to research potential pitfalls and complications. This duty gives agents the obligation to act as experts in the field, helping their principal to navigate the process with a minimal number of problems. There is an important addendum to this duty. Real estate agents are not required to research or investigate matters outside of their expertise. Real estate agents are not required to investigate if a title is clouded, if the property has internal damage, or if there are liens on the estate. If the real estate agents signs a contract to perform these actions, then the agent is legally required to get expert advice on these potential problems (hire a lawyer or builder for instance). The agent is only required to bring in these experts if a contract requires it. All agents are required to account for all money received either from or for their principal. Accounting is one of the most important duties an agent owes, because money is at the heart of the transaction. Mishandling of funds is one of the quickest ways to have one's license revoked. Real estate principal brokers are required to maintain a client trust account. This account will hold all money received on behalf of other persons. Individual brokers need to deposit the money they receive into this account within three days. When they receive the money, brokers must immediately record the information in their client account ledgers. Principal brokers will, at least once a month, look over all records and ensure that all of the clients' money is present and accounted for. All agents have a duty to be loyal to their principal. Agents must do whatever they can, legally and ethically, to insure that they do not take any actions which could hurt their principal or their negotiating position. Note: this is limited by ethics and law. Agents must reveal material facts and an agent cannot commit fraud in order to aid their principal. If a principal needs guidance in topics outside of the expertise of the agent then the agent has a duty to tell the principal to get their information from an expert. Agents are not required to recommend an expert (though it is good business practice as it can lead to back referrals). Because agents owe their principals loyalty the agent cannot recommend an expert whose services will be inadequate. If your uncle is a family practice lawyer you cannot recommend your principal ask him for advice on the property title (unless he is also an expert on titles). There is no law that prevents agents from being paid to refer clients as long as the people the agent is referring to are qualified. Agents must disclose any conflict of interest they have or that they may take on. For instance, if a buyer asks about a property which the brother of the buyer's agent owns the buyer's agent is required to disclose that his brother owns the property. Finally, all agents have a duty of confidentiality. Agents must refrain from revealing any confidential information either about, or received from, their principal. Remember, confidential information covers any communication from or about the principal, with the exception of material facts and information the principal specifically requests be shared. Agents must keep this information confidential forever. The duty does not end when the agency relationship ends. The only times an agent is allowed to reveal this information is if the principal gives them permission (which makes it no longer confidential information) or they are ordered to reveal the information by court order or subpoena.

Ratification

An agency relationship that is established by ratification is one where *a person or organization acted for another person or organization without the official agreement of the principal person or organization but the principal accepts the actions of the apparent agent*. The de facto principal has to accept the actions of the de facto agent for an agency relationship based on ratification to be valid. Say a real estate broker sells a property owned by a client without the express consent of the owner. If the owner accepts the sale of the property, the property owner and real estate agent have established an agency relationship by ratification.

Buyers and Sellers

An individual becomes a "buyer" when he or she does one of two things. Either the person submits an offer to purchase or the person signs an exclusive representation contract with a real estate broker (or principal broker) in order to gain representation as a buyer. An individual becomes a "seller" when he or she does one of two things. Either the person receives an offer to purchase or the person signs a listing agreement.

Apparent Authority

Apparent authority, or ostensible authority, is more complex than actual authority. This form of agent authority exists in situations where an agent or third party was not aware of the scope of an agent's authority, or limitations on the agent's authority. This can occur if the principal, either willingly or unintentionally, allows an agent to act with authority that is not real. Often, apparent authority is invoked to protect third parties that are damaged when it is made clear that the authority of the agent did not actually exist. A party can hold the principal accountable if that party, in good faith, believed that an agent was acting with actual authority even if the authority was illusory. This is closely tied to the idea of agency relationships that are created by estoppel. For example, a principal organization authorizes an agent to buy powerboats on behalf of the principal organization. However, the principal fails to alert the agent that she is only allowed to buy boats in one state. The agent expands into a second location across the state line. The principal organization accuses the agent of violating the agency contract and claims that any purchases in the other state are not valid. Someone who sold a boat to the agent could hold the principal organization liable even though the authority to purchase the boat in the other state did not exist. A person who sold a boat to the agent acted in good faith on the assumption that the authority was real. Furthermore, the agent could also hold the principal liable for any damages she incurred since she was operating with apparent authority.

Agency Relationship Acknowledgement

As we have already discussed, agency relationships are regulated by the state. The Oregon Real Estate Agency has promulgated rules which cover the type of relationships and the requirements for the agency agreement. The first part of the rule covers two very important points. The first point is that it lays out the three different types of agency relationships (seller's agent, buyer's agent, disclosed limited agent) as well as the different ways that a broker/principal broker can become a disclosed limited agent. The second very important point that it lays out is that the parties in the relationship are allowed to set up a different type of relationship, provided that that relationship isn't prohibited by law. Because of affirmative duties owed by agents and the fact that these duties cannot be waived, limited service agents (those that only list a property) are prohibited by law. It is possible, however, for a brokerage to create a different type of agency relationship that does not conflict with statute. At this time there isn't any such relationship that is common in Oregon. Whenever a licensee forms an agency relationship with a client, the principal broker that oversees the licensee becomes the client's disclosed limited agent. This applies regardless of whether the seller and buyer are both represented by the same brokerage. The rule reiterates that the supervised broker/principal broker is only a dual agent if he or she is personally representing two competing interests in a transaction. Supervising principal brokers are required to supervise the licensees that they oversee, to not advocate for or against clients of the business, and to avoid revealing or using confidential information gathered from the clients. Any person acting as a disclosed limited agent must fulfill the affirmative duties of disclosed limited agents. The affirmative duties apply to all the parties in the transaction, as applicable, but these duties do not necessarily create fiduciary duties. These duties, and other similar duties, are created by the actual agency relationships. The rules specifically acknowledge that licensees are allowed to disclose factual, non-confidential information in order to fulfill the affirmative duties of the agent. If a principal broker has a disclosed limited agency agreement and discovers that confidential information concerning one member of a transaction has been revealed to another without their permission then the principal broker must disclose this information, in writing, to the affected party. This only covers information which has been transmitted in violation of the rule. If a client approaches a seller's agent and says "there was a murder in the property so I would like to get rid of it soon" and the seller's agent reveals this to a buyer that is represented by the brokerage, then the principal broker must disclose to the seller that the information was disclosed. However, if the buyer finds out about the murder from a newspaper then the principal broker is not required to disclose to the seller that the buyer knows this information. An agency agreement can only be created through an agency contract. Merely being paid a real estate commission, or being promised a real estate commission, does not create an agency relationship. This prevents a buyer's agent from becoming the seller's agent simply because the offer to purchase contains a provision wherein the buyer's agent will be paid. Finally, ORS 696.845 requires a Final Agency Acknowledgement to be included on certain documents. OAR 863-015-0200 lays out the content that must be included in this form. Any form which is used by brokerages must be substantially similar to the form in the rule. That means it must contain the same information and be formatted in such a way as to convey the same intent. In 2017, OAR 863-015-0200, and thus the content that is required to be included in the Final Agency Acknowledgement, was revised. The following are the changes that were made to the form: - In paragraph (1), the term "Selling Licensee" was replaced with the term "Buyer's Agent." ~~ This revision recognizes the presence and proliferation of buyer's agents in the real estate industry. - In paragraph (2), the term "Listing Licensee" was replace with the term "Seller's Agent." ~~ This revision revises the language to use more common and standard terminology. - In paragraph (3), each use of the term "licensee" or "licensees" is replaced with either the term "Agent" or the term "Agents."

Disclosure of Acting as Principal

Brokers have special knowledge about, and lots of experience in, real estate sales. This means that when a broker performs a "For Sale By Owner" they have a much larger advantage than a non-broker would have. Brokers who sell or buy real estate for personal use are required to disclose that they are a real estate broker and that they are representing themselves. In such a case, the other side of the transaction will most likely want to hire their own agent so that they can be on equal footing.

Confidential Information and Disclosed Limited Agency

Confidential information is any information that a real estate licensee receives from a buyer or seller that relates to the real property transaction. This includes information like price, reason for selling, and financial status. This definition specifically states that it must be information relating to the sale of "one to four residential units". Sales that cover property with greater than four residential units have different rules regarding what is confidential as they are more akin to a commercial transaction than a private transaction. Additionally, confidential information does not include either of the following: Information the person asked the broker to communicate about themselves (e.g. information the buyer gave and asked that it be communicated to the seller) and information which state law requires to be disclosed (such as material defects). Disclosed limited agency is a real property transaction where both the buyer and the seller, or two independent buyers for a single property, are represented by brokers who are under the direction of a managing principal broker. This means that even if they use different brokers or different principal brokers, the fact that they are a part of the same business (which is all controlled by a single principal broker) is enough to trigger the disclosed limited agency.

Death of the Principal

Death of the principal works the same way as destruction of the property. The broker is an agent of a specific person (principal). If the principal dies then the broker cannot enact the will of the principal. There is one major exception to this form of contract termination. Wills are a form of agency contract that continues despite the death of the principal. When an individual dies their assets become part of an "estate." The person who is in charge of an estate is the executor. If a person is selling property and then dies, the property will become part of the estate, and the executor will be in charge of that estate. You will need to speak to the executor to determine what is to be done with the property. In many cases, the executor may hire you as an agent to finish the sale. If the executor does not know that you are currently selling the property then the executor may hire a different broker to sell the property. Additionally, if the sale is most of the way through the process when the owner dies you will want to contact the executor and a real estate lawyer as soon as possible. There can be a number of complications, such as what happens to the earnest money, how far along in escrow is the sale, and who receives the proceeds from the sale.

Destruction of Property

Destruction of property is similar in concept to completion. When the agency relationship is set up to sell a certain property, the relationship only exists as long as the principal has control over the property for sale. If the principal loses control of the property (such as if it is destroyed) then the agency relationship has to end because it no longer applies to anything. Destruction of property does not have to mean literal destruction either. If, for example, the property owner lost the house to his wife in a divorce then the contract would become void.

Expressed Athority

Expressed authority is authority that is clearly and specifically granted to an agent. This kind of authority is often written into the contract that establishes the agency relationship. It can also be present in an organization's charter or regulations. In some cases, oral agreements can represent expressed authority. The most important thing to consider is whether it was stated in some manner that the agent had the authority in question. For example, a property owner and a real estate agent enter into an agency relationship. The contract that established the relationship states that the agent has the authority to sell any of the owner's properties that are estimated to fall below a certain specified property value. This authority to sell the properties that look to be lowering in value is expressly stated as being something the agent can and should do as the property owner's agent.

Indemnity

If an agent suffers damages, losses, or injuries, through no fault of his or her own, which are caused while fulfilling the agency relationship, the principal is responsible for making restitution to the agent. For example, a real estate broker is hired to act as an agent for a property owner in selling a series of properties. Unfortunately, the broker is targeted by a scam artist and ends up losing a significant amount of money to the scam. If the broker can be reasonably said to be faultless in this situation, the principal is responsible for repaying some of the broker's losses.

Compensation and Agency Relationships

In a real estate transaction, there are many different payments that are made. The buyer's broker gets paid, the seller's broker gets paid, and these commissions are passed through the principal brokers in charge of both agents. This statute makes it clear that payment does not create an agency relationship. Additionally, this law says that parties are allowed to create any type of professional relationships they desire provided they do not violate existing law.

Sex Offender Disclosure Requirements

In real estate transactions sellers and their agents are required to disclose all material facts. ORS 696.880 is similar in purpose to ORS 93.275. ORS 696.880 makes it clear that proximity of a residential property to a sex offender is not a material fact and does not need to be disclosed. This clarifies, in order to prevent confusion, that agents are not required to disclose this information when selling residential property.

The agent committed fraud

In which case is a principal NOT required to compensate an agent? - The agent refused to carry out unlawful orders - The agent committed fraud - The agent failed to achieve the aims of the contract - The principal changed his or her mind about the agency relationship after the agent had already fulfilled some assigned duties

The principal refused to rent to families with children

In which of the following cases would a principal be liable for an illegal action in the real estate transaction? - The principal is always liable for real estate actions under the principal "he who acts through another acts himself." - The principal did not perform adequate supervision of the agent. - The principal can never be held liable for problems that arise in a real estate transaction where they are represented. - The principal refused to rent to families with children.

Buyer Agency

More recently, people interested in purchasing property have begun forming agency relationships with real estate agents and firms to assist them in buying property. Sometimes called a buyer brokerage agreement, this kind of agency relationship involves the real estate agent or firm acting as an agent representing the buyer in negotiating for the purchase of a property. Tenant agency is a similar relationship where the real estate agent or firm is representing a principal party looking to lease a property.

Care and Skill

Part of an agent's responsibility to the principal is to carry out assigned tasks skillfully and carefully. The agent needs to show reasonable judgment when performing the duties that go along with being an agent. The principal can be held responsible for any negligent or reckless behavior of an agent.

Oregon Statutory Liability

Per ORS 696.822 all liability for the actions of real estate agents falls upon the specific licensee and the licensee's supervisor. There are a few situations in which this is not the case. If the principal purposefully committed, either through themselves or through the agent, an error or omission and benefited from the act, then the principal can be held liable. In general, the principal will only be held liable if it would be unlikely that the agent or subagent could be convicted of committing the error or omission. For instance, if a seller and their agent meet with a potential buyer, who is African American, and the homeowner makes racist slurs and then refuses to sell them the property, the seller can be found liable. The seller was the one who refused to sell the property and the licensee cannot legally force the homeowner to sell. If, however, the licensee had also used the racial slurs, then it might be probable that the real estate agent would also be found liable.

Duties to the Broker

Principal brokers have a number of duties that they owe to the brokers in their employ. Since the principal broker and the broker are in an agency relationship, all of the standard duties and responsibilities in this type of relationship apply. There are two additional responsibilities that principal brokers have towards their brokers: supervision and training.

Disclosure

Principals are responsible for the actions of their agents. In order to effectively police the actions of an agent it is required that the agent disclose his or her actions to the principal. Disclosure needs to be complete and accurate. An agent cannot hide information from the principal if it has any bearing on the agent's performance. Additionally, an agent must be proactive in letting the principal know about issues that the agent discovers that might in any way affect the interests of the principal. While the agent is the "man on the ground" in regards to the specific authority they are given, it is always the principal that has the final decision-making authority and the final liability. There will be many times when an agent must make a decision before he or she can contact the principal. This is the primary reason why agents exist. However, the agent then needs to let the principal know what decision was made and why it was made as soon as practical.

Duties Owed by Buyer's Agents

Real estate brokers and principal brokers who represent the buyer, and only the buyer, are considered to be buyer's agents. Remember, buyer's agents still owe some duties to all parties (honesty, disclosure, communication) and they owe the buyer the duties common to all agents (reasonable care, accounting, loyalty, referral, confidentiality). Buyer's agents are required to try to find properties for sale for their buyer. Buyers will almost always consider dozens of properties before deciding on one they wish to make an offer on. The agent, therefore, needs to be continuously looking for new properties for the buyer. This duty is the only duty that can be waived and only if the buyer requests, in writing, that the agent stops trying to find properties for sale. Additionally, if the buyer is under a contract for purchase then the agent is not required to seek additional properties. When making an offer to purchase, earnest money is almost always required, and the buyer is punished if they withdraw without good cause. If a buyer were to make multiple offers to purchase at the same time, they could wind up being out a lot of earnest money. This caveat allows the buyer's agent to remove the property from the market without failing at their affirmative duty. Not all transactions offer the buyer's agent commission. For instance, some FSBOs will not include any commission. If a property has no written agreement to compensate the buyer's agent then the buyer's agent is not required to show this property to their buyer. This provision makes it so that brokers are not legally obligated to work for free. Finally, a buyer's agent can show other buyers a property which their principal is interested in. If the buyer begins a contract for purchase then the property will be removed from the market and so, without the contract the buyer has not shown enough interest to preclude others being interested. The only way this could be a conflict of interest is if the agent discourages a buyer from purchasing a property solely because they wish to give the property to a different buyer (probably because the offering price is higher).

Duties Owed by Seller's Agents

Real estate brokers and principal brokers who represent the seller, and only the seller, are considered to be seller's agents. Remember, seller's agents still owe some duties to all parties (honesty, disclosure, communication) and they owe the seller the duties common to all agents (reasonable care, accounting, loyalty, referral, confidentiality). Seller's agents are required to try to find buyers for the seller's property. Agents need to do their best to set up good listings, show houses, negotiate with potential buyers, and market the properties. This duty is the only duty that can be waived and only if the seller requests, in writing, that the agent stop trying to find buyers for the property. Additionally, if a property is under a contract for sale then the agent is not required to seek additional buyers. Almost all offers to purchase require that the property be removed from the market until the property either closes or the buyer withdraws. This caveat allows the seller's agent to remove the property from the market without failing at their affirmative duty. Finally, a seller's agent can be a seller's agent for a different person and can list competing properties for sale. When doing so the agent is not in violation of his or her duty of loyalty. An agent can be considered to be violating the duties to a seller if that agent actively attempts to convince potential buyers not to purchase that property (for instance saying "you wouldn't like that property, check out this one instead"). The key here is about disincentivising someone to buy a property rather than incentivising them to buy a different one.

Types of Services That a Broker Can Provide

Real estate brokers provide numerous services to clients. Some services are specific to those people who are selling properties and some are specific to people who are buying property. There are even a few services that brokers provide that assist both buyers and sellers.

Services Provided to Landlords

Real estate involves not just the purchase and sale of property, but also the management of property. Real estate agents are allowed, under Oregon law, to engage in the profession of property management. Property managers take charge of real estate and manage the tenants for the benefit of the property owners. Income derived from the business of real estate sales can be erratic, with big paydays and droughts in between. Property management, on the other hand, is steady and consistent income. You may find that your business model will benefit greatly from doing both of these jobs at the same time. A brokerage may be set up so that it focuses on property management in the "off" season (winter) and property sales in the "on" season (summer).

False

Real estate professionals all operate as the same kind of agent. - False - True

Disclosure of Conflict of Interest

Sometimes a broker will assist in a transaction where they have a vested interest. They may be helping their child buy property, selling a commercial park that they rent a section of, or are selling a property their husband has a contractor's lien on. Regardless of the source of the conflict, brokers are required to inform all parties of their potential conflict of interest. Brokers are not required to avoid all conflicts, but rather they simply need to make the various parties aware of the conflicts. For instance, a seller will not likely care that the broker is representing his child and so the conflict will be acknowledged but the sale will proceed. In some cases, other parties may feel uncomfortable proceeding because of the conflict of interest. By disclosing the conflict these people can then choose to work with a different broker.

Subagency

Subagency is a situation where a real estate agent working for another real estate agent assists the primary agent with a real estate transaction. It is important to note that a subagent has the same principal as the primary agent. Sometimes a real estate broker will assign another real estate agent to work with a buyer as a subagent. However, the subagent does not represent the buyer in this situation. The subagent has the same client as the primary agent, the seller, but works with the seller in order to facilitate the transaction. Since real estate brokers are agents of principal brokers, a broker assigned to assist the principal broker with a real estate transaction is acting as a subagent for the principal broker who is acting as an agent for the buyer or seller that is the principal party. Under Oregon law, the principal broker is always the true agent of every individual with whom the firm works. All brokers are subagents of the principal broker.

Initial Agency Disclosure Rules

The Oregon Real Estate Agency creates rules governing the content and distribution of agency disclosure pamphlets. The difference between a rule and a statute is who creates the rule. Statutes are created by the legislative branch. They are voted on in the House and Senate before being signed into law by the governor (or president). Rules, on the other hand, are created by the executive branch. The executive branch includes dozens of agencies and boards. These agencies create rules in order to guide the conduct under their purview. Agencies are set up by statute and given authority by statute. For instance, the Oregon Legislature issued ORS (Oregon Revised Statute) 696.820 in which it is stated that "The Real Estate Commissioner shall prescribe by rule the format and content of an initial agency disclosure pamphlet." In response the Real Estate Agency (which is headed by the Commissioner) issued OAR (Oregon Administrative Rule) 863-015-0215: Initial Agency Disclosure Pamphlet. Statutes can be challenged by claiming that they are unconstitutional. Rules can be challenged by saying that they are unconstitutional or that they are contrary/unauthorized by statute. Rules are vital to the functioning of a government. Statutes lay out what the government cares about and the goals it wants to accomplish, but it is the rules that allow the government to adapt to the changing conditions of the society. As mentioned in the statute, the pamphlet must be distributed at "first contact." The rule defines "first contact" so that it can be better applied to specific situations. First contact is defined as any time a broker/principal broker has made contact and has sufficient information to be able to give the person a pamphlet. For instance, if a person calls in but does not provide an email address or physical address, then the broker would not be able to send them paperwork. Without this definition that broker would be in violation of ORS 696.820. The statute says that the pamphlets need to be distributed to "each party to a real property transaction." The rule further defines this by stating that the pamphlet must be disclosed to anyone who appears to be interested in becoming a party to a transaction or who is unrepresented and seeking to become represented. This clarifies when a person becomes a party to a real property transaction. The rule clarifies exactly how a pamphlet may be "provided." In response to the fact that the disclosure is required based on phone, mail, in-person, and internet contact, the pamphlet can be disclosed by email, by internet (i.e. view a web page), fax, hand delivery, or mail. The purpose of the statute is to eliminate confusion over the nature of the agency relationship. In order to reduce confusion and to reduce paperwork, the rules allows real estate brokers to not provide a pamphlet to someone they can reasonably believe to have already received one. If a person contacts a broker and talks about what they learned from their real estate agent, then this person, by Oregon law, has already received a pamphlet and doesn't need another one. The purpose of the pamphlet is to inform consumers of real estate brokerage services about the nature of the agency relationship. The Agency has determined what is vital information and requires that it be in the disclosure. The disclosure must contain a statement informing the recipient that this disclosure is required by law and given to all persons who are seeking to engage in a real estate transaction and have not already received one. The disclosure must have a general definition of an agency relationship and the three types of relationships in Oregon. The disclosure must define "confidential information" and list the affirmative duties of the different types of agents. Finally, the disclosure must state that this disclosure is not an attempt to set up an agency relationship and "Whether you are a buyer or seller, you cannot make a licensee your agent without the licensee's knowledge and consent, and an agent cannot make you a client without your knowledge and consent." The Oregon Real Estate Agency has a sample initial agency disclosure pamphlet which can be accessed here: https://www.oregon.gov/rea/licensing/Documents/Sample_Initial_Agency_Disclosure_Pamphlet.pdf. When operating as a broker, your brokerage will likely have their own version of the disclosure pamphlet. If for, some reason, this is not the case (the brokerage uses its own, you are a principal broker setting up a new brokerage, the brokerage wants you to create a new one), then you may use this form or you may create one provided that it complies with section (5) of OAR 863-015-0215.

Responsibilities of the Agent to Third Parties

The main responsibility that an agent has to third parties is to be fair and honest when working with them. An agent is only responsible for carrying out a contract with a third party if the agent did not disclose the existence of a principal party. A principal is responsible for any tort (an act considered civilly wrong which causes harm to another) committed against a third party by the agent, regardless of whether the agent had permission from the principal. An agent is not allowed to sign contracts for the sale of real estate property in place of the principal without specific authorization from the principal.

Common Law

The other major form of law is common law, also called "case law" or "precedent." Common law is created by the judicial branch and neither subordinate nor superior to administrative, statutory, and constitutional law, per se. Common law is the most flexible of all laws and is extremely case specific.

Principal

The party that directs the actions of a representative party and shoulders a large portion of the responsibility for the actions of the representative party is known as the... - Third Party - Principal - Broker - Agent

Principal

The principal is *a person or organization that acts through another person or organization*. The principal grants some amount of authority to the agent and, in turn, accepts some responsibility for the actions of any agents who are representing the principal party. The principal directs the actions of the agent, or agents, which is another reason why the principal can be held partially responsible for actions taken by the agent or agents. Property owners and real estate brokers create principal-agent relationships when owners enter into listing agreements where the real estate broker represents the owner in business and legal interactions with other parties. The property owner becomes the principal when he or she grants the real estate broker authority to act on behalf of the property owner. Principal real estate brokers also act as the principals for brokers that they manage. The principal broker shoulders some of the responsibility for the brokers that he or she employs to carry out tasks in his or her place.

Seller Agency

Traditionally, a real estate agent or brokerage firm was an agent for a party selling a property. The seller and the real estate agent or firm form an agency relationship, often called a listing agreement. A listing agreement gives the real estate agent or firm the authority to market a property for a specified price during a defined period of time. Similar to this is landlord agency whereby the real estate agent or firm helps a property owner lease the property.

False

True or False: Apparent authority is expressly detailed in the contract that establishes the agency relationship. - True - False

True

True or False: Most agency relationships are formed by contractual agreements. - False - True

Necessity

When an agency relationship is established by necessity it is usually because *an agent acted to prevent harm to people or property*. There is no actual agreement that the agent can act in such a manner, but the necessity of the situation has created or extended an agency relationship. Say a building tenant is alerted by a routine inspection that the wiring in several of the offices is faulty and poses a significant hazard to people working in those offices. The tenant does not have expressed or implicit authority to hire people to repair the wiring. However, because of the danger, the tenant hires a group of specialists to fix the problem. The tenant later goes to the property owner and asks for reimbursement for the money spent on the repairs, but the owner refuses citing that there was no agency relationship with the tenant and the tenant did not have any authority to authorize the repairs. The tenant could reasonably claim that he acted as a necessary agent of the property owner and is owed reimbursement since he paid for the repairs on behalf of the property owner. There was no expressed agreement between the owner and tenant, but the danger of the faulty wiring forced the tenant to act as the owner's agent.

A buyer contacts you to give an offer to purchase because his broker is sick and he wants it done now.

Which of the following contacts would not require a broker to give the customer an agency disclosure pamphlet? - A buyer contacts you to give an offer to purchase because his broker is sick and he wants it done now. - A person comes to your office asking about how much your services cost and what types of services you offer. - You meet an individual at a housing fair who starts talking to you about how he has been looking to sell his house. - You submit an offer to purchase on a For Sale By Owner property on behalf of your client.

A duty to disclose the fact that the roof leaks.

Which of the following duties does a seller's agent owe to the buyer? - A duty to tell the buyer exactly how low the seller is willing to go. - A duty to disclose the fact that a pedophile lives next door. - A duty to disclose the fact that the roof leaks.