Ch 2 unit 2
What does the law say about the disclosure of latent defects?
A broker has no duty to discover "latent" material defects in a property if the seller has not disclosed these defects prior to the sale.
Latent defects are
A latent defect is hidden flaw, weakness or imperfection on a property which a seller knows about, but the buyer cannot discover by reasonable inspection. The law holds that a broker has no duty to discover "latent" material defects in a property if the seller has not disclosed these defects prior to the sale. The issue of stigmatized property in recent years has been a popular topic for discussion. Stigmatized properties are those properties that have an undesirable reputation due to an associated unpleasant occurrence, such as a murder or gang violence. Due to the potential liability, a licensee should seek legal advice when dealing with such properties.
Cont.
A licensee for the buyer has a duty to disclose such things as: Deficiencies in the property Any contract provision of financing terms that don't suit the buyer's interests How long the property has been listed unless the seller is also a client Why the seller is selling, if this is not confidential information from a previous relationship with the seller. There is no obligation to obtain or disclose information related to a customer's race, creed, color, religion, sex or national origin: anti-discrimination laws hold such information to be immaterial to the transaction. Many states have enacted laws requiring a seller to make a written disclosure about property condition to a prospective buyer. This seller disclosure may or may not relieve the licensee of some liabilities for disclosure.
Disclosure
A licensee is bound to inform the client of all facts that might affect the client's interests in the transaction. This includes both the facts that the licensee knowsand those that the licensee should have known. A licensee is responsible for discovering anything that might be deemed important to his client in making an informed decision, whether or not they are favorable to the client's position. A licensee could be held liable for damages if he or she failed to disclose such information. A licensee for a seller has a duty to disclose such things as: Purchase offers Who the prospective purchasers are and if the licensee has a relationship with them in any way Ability of the purchaser to complete the transaction Ability of the purchaser to offer a higher price, unless the purchaser is also the client of the licensee Purchaser's intention to resell the property for a profit unless the purchaser is also the client of the licensee
The common form of express written agency agreement between a seller and a managing broker is
A listing agreement
Implied Agency
A written agreement is not necessary to create an agency relationship - the relationship can be implied. This relationship is formed when the actions of the parties indicate that they have mutually consented to an agency. In fact, the persons involved may not have consciously planned to form an agency relationship. However, their actions may unintentionally, inadvertently or accidentally form the relationship. For example, Buyer Mary calls Broker Jim to show her a home. She assumes then that he is her agent.
Since the listing agreement is a contract that establishes an agency relationship, which law(s) is the relationship subject to?
Agency law Indiana Real Estate Licensure laws Contract law
Informed written consent.
An agent who desires to operate in a dual agency capacity must obtain the informed written consent of all parties. Subsequent contracts should confirm the disclosure. "Informed written consent" means both parties have read, understood, and signed an acceptable disclosure form. Undisclosed dual agency is a violation of the license law and can result in penalties such as reprimand, fines, and license suspension or revocation.
Define implied agency.
An implied agency is formed when the actions of the parties indicate that they have mutually consented to an agency. The persons involved may not have consciously planned to form an agency relationship. However, their actions may unintentionally, inadvertently or accidentally form the relationship.
Agency Disclosure
Before a licensee signs a listing agreement with a seller, he or she must give the seller an agency disclosure. According to Indiana law, a licensee must inform the consumer in writing of the following: That a designated agency relationship exists, unless there is written agreement between the sponsoring broker and the consumer providing for a different brokerage relationship. The name or names of his or her designated agent or agents. This written disclosure can be included in a brokerage agreement or be a separate document, a copy of which is retained by the sponsoring broker for the licensee.
When must a licensee give a client an agency disclosure notice?
Before the seller signs the listing agreement or shows property to a buyer client.
Which of the following is NOT true?
Brokers are not liable for what they should know by inspection of the property.
The agency ratification and estoppel relationship arises by what rather than by a written agreement?
By the actions of the parties involved
If a client refuses to disclose material defects to a buyer, what should the agent do?
Decline or sever the agency agreement
designated agency.
Designated agency means that a broker may designate one or more licensees to act exclusively as the agent of the seller or landlord, and designate one or more licensees to act exclusively as the agent of the buyer or tenant in the same transaction. This arrangement must also be disclosed to both parties and the broker must obtain the written consent of both the buyer and the seller. The broker is still a dual agent in the transaction, but by designating separate agents for each principal, the individual client's interests are protected.
What is designated agency and why is it important?
Designated agency means that a broker may designate one or more licensees to act exclusively as the agent of the seller or landlord, and designate one or more licensees to act exclusively as the agent of the buyer or tenant in the same transaction. This arrangement must also be disclosed to both parties and the broker must obtain the written consent of both the buyer and the seller. This is important because it can eliminate the potential conflict involved in a consensual dual agency arrangement.
Disclosure Issues
Disclosure is a duty of the licensee to inform the client when facts or information might impact the transaction. The licensee is required to discover facts that a reasonable person would consider important when selecting a course of action. The key to disclosure deals with the issue of "did the licensee know or should have known" pertinent information that might impact the transaction. For example, seller Mike has listed his home with Agent Gary. During the listing period, the county board has rezoned Mike's property for retail business use. This action has greatly increased the value of the Mike's property. Agent Gary is unaware of the change and continues with the existing listing. The listing sells at the "residential" value. A few weeks later, Mike discovers that he could have asked three times more the amount for his property. Agent Gary might be held liable for his mistake. Another example might be that when showing a property, a licensee fails to comment about the obvious growth of mold on the basement rafters. Even though the defect was not noted on the Seller's Disclosure, the licensee needs to point out the issue to the buyers.
Undisclosed Dual Agency
Dual agency can arise unintentionally; but if it is not recognized, disclosed, and agreed upon in writing, it can pose some serious problems. To avoid those problems, dual agency must be disclosed to both the buyer and the seller. Both parties must agree in writing to the dual agency relationship. The issue of an undisclosed dual agency will never arise if both the buyer and seller are happy with the transaction. If either of the parties becomes unhappy at any point, it can mean, at the very least, the undoing of the transaction even several months after the transaction has closed.
Conflict of interest.
Dual agency contains an inherent conflict of interest. Since many of an agent's fiduciary duties can only be rendered to one party, dual agency is, by definition, difficult, if not impossible.
Dual agency
Dual agency means representing both principal parties to a transaction. The agent represents both buyer and seller or tenant and owner. For instance, if a salesperson completes a buyer agency agreement with a party on behalf of a broker, and the party then becomes interested in a property listed by the broker, the broker becomes a dual agent. Dual agency has become increasingly prevalent with the advent of buyer and tenant representation. Dual agency may arise from voluntary, specific agreement between the principal parties or from the parties' actions, much like implied single agency.
An agent owes ____________ duties only to a principal.
Fiduciary
Which of the following is NOT a duty an agent has to all parties of a real estate transaction?
Fiduciary
Oral disclosure
If an agent becomes involved in a substantive contact over the phone or in such a way that it is not feasible to make written disclosure, the agent must make the disclosure orally and follow up with a written disclosure at the first face-to-face meeting.
Agent's Authority
In Indiana, contractual relationships are always formed at the managing broker level, never at the broker level. For this reason, each office must have a managing broker who is responsible for all real estate activities. The agency relationship is vested only in the agent, or agents, named as the designated agent or agents. In other words, if a seller lists her property at a particular managing broker's office, the agent in the office, who has been named the designated agent, has the job of obtaining the best possible transaction for the seller. In the same way, if the buyer is under contract with this same managing broker, then the agent in the office who has been named the designated agent is only representing the buyer.
Written, informed consent
In states that permit dual agency, the agent must meet strict disclosure requirements, and principals must agree in writing to proceed with the dual agency relationship.
Brokers are liable for what they:
Know from disclosure by the principal Should know because of their skill and training Should know by inspection of the property
What does law mandate that a licensee provide to a client at the beginning of a designated agency relationship?
Law requires that at the beginning of the agency relationship: The client receives documentation in writing that a designated agency relationship exists, unless there is written agreement between the sponsoring broker and the consumer providing for a different brokerage relationship. The written confirmation shows the name of the designated agent (or agents).
What are the duties a customer can expect from a licensee?
Licensees do have certain obligations to customers, even though they do not represent them. In general, they owe any third party: Honest dealing Reasonable care and skill Proper disclosure
The licensee could be known as a transaction broker, facilitator, or coordinator in which type of agency?
Non-agency
A seller's licensee must disclose what kinds of things to the seller?
Purchase offers Who the prospective purchasers are and if the licensee has a relationship with them in any way Ability of the purchaser to complete the transaction Ability of the purchaser to offer a higher price unless the purchaser is also a client Purchaser's intention to resell the property for a profit unless the purchaser is also a client.
Facilitator disclosures
Rules for disclosing a transaction broker's status of non-agency are similar to those of dual agency. The agent must provide written notice to all parties or their agents on first becoming a transaction broker or on the first substantive contact, whichever comes first.
Duties not imposed on the transaction broker.
Since there are no fiduciary duties binding the transaction broker, the broker is held to standards for dealing with customers as opposed to clients. These include honesty, fair dealing, and reasonable care. The transaction broker is under no obligation to inspect the property for the benefit of a party or verify the accuracy of statements made by a party.
Non-agency
Some states also allow a licensee to act in a non-agency capacity. Depending on the state, the licensee could be known as a transaction broker, facilitator, orcoordinator. A transaction broker is not an agent for either party but instead acts as a neutral party between both sides. When serving in this capacity, a licensee: Must advise the consumer that he or she is not acting as an agent or advocate for the consumer and should not be provided with confidential information Owes the additional duty of limited confidentiality and may not disclose the following information:The seller or landlord will accept a price that is less than the asking listing price.The buyer or tenant will pay a price greater than the price submitted in a written offer.The seller or landlord or the buyer or tenant will agree to financing terms other than those offered.
On what classification of agency is most real estate brokerage based?
Special agency
Prohibited disclosures.
State regulations prohibit a dual agent from making certain disclosures. For instance, a dual agent, unless expressly instructed by the relevant party, usually cannot disclose: to the buyer that the seller will accept less than the listed price to the seller that the buyer will pay more than the price submitted in a written offer to the seller the motivation of any party concerning the transaction that a seller or buyer will agree to financing terms other than those offered
Substantive contact
Subject to variations in state regulation, "substantive contact" between listing agent and customer occurs whenever the agent is: showing the prospect a property eliciting confidential information from a prospect regarding needs, motivation, or financial qualification executing a contractual offer to sell or lease Exclusions. Interaction between a seller's agent and a customer is not always substantive. Possible instances that might be excluded from the requirement of disclosure are: attendance at, or supervision of, an open house, providing the agent does not engage in any of the contacts described above preliminary "small talk" concerning price ranges, locations, and architectural styles responding to questions of fact regarding advertised properties
The agency relationship is vested only in whom?
The agent or agents named as the designated agent or agents
Define special agency.
The broker has limited, well-defined powers confined to a single transaction and is not empowered to sell the property, nor bind the principal to any contract nor exercise any authority over the seller's other affairs.
Special Agency:
The broker has limited, well-defined powers confined to a single transaction. Most real estate listing contracts are special agencies. The broker is employed only to procure a ready, willing and able buyer. The broker is not empowered to sell the property, nor bind the principal to any contract nor exercise any authority over the seller's other affairs. In most instances, real estate brokerage is based on a special agency. The principal hires a licensed broker to procure a ready, willing, and able buyer or seller. When the objective is achieved, the relationship terminates, although certain fiduciary duties survive the relationship. An agency coupled with an interest is an agency relationship in which the agent has an interest in the property that is being sold. This type of agency cannot be revoked by the principal, nor is it terminated if the principal dies. For example, a broker agrees to finance a condominium development if the developer agrees to give the broker the exclusive right to sell the finished condo units. Since the broker has a special interest in the transactions, the developer would not be able to revoke the listing agreement after the broker has provided the financing.
Disclosure
The licensee who turned a potential seller into a client should share the comparative market analysis of the current market value of that property. The licensee should also share his or her evaluation of any market trends that would affect the seller, such as a nearby area being zoned commercial or a large employer in town who is planning to shut down.
Disclosed (voluntary) dual agency.
The parties to a transaction may create a dual agency by giving written consent in disclosure forms, confirmation forms, and sale contract forms. For example, an agent represents a buyer who becomes interested in a property that the agent has listed with the seller. The agent then discloses the relationship with the principals to both principals, and the principals agree in writing to move ahead. A disclosed dual agency is thus voluntarily created. If both parties accept the dual agency, the agent owes all the fiduciary duties to both parties except full disclosure, undivided loyalty, and exclusive representation of one principal's interests.
Sexual Offender Act of 1994
This Act requires offenders to notify law enforcement when they change address and/or employment locations. Listing agents have no legal duty to disclose the location of known sex offenders in a neighborhood to a potential buyer. However, if the topic does come up in conversation, a competent agent should refer a buyer client to the public record. If doubt arises, the agent should consult with an attorney.
Agency Ratification and Estoppel
This agency relationship arises by the actions of the parties involved, rather than by a written agreement. For example, Charles is the owner of a vacant property he is selling himself. He knows that broker Hal is showing the property to prospective buyers without the authority to do so. If Charles doesn't stop Hal from doing the showings, the law considers that the prospective buyers have the right to believe that Hal is Charles' agent. This agency is also known as ostensible agency because on the surface an agency relationship appears to exist. In the example above, once this type of agency is created, Charles is prevented by estoppel* from denying its existence. *Estoppel is defined as a legal doctrine by which a person is prevented from asserting rights or facts that are inconsistent with a previous position or representation made by act, conduct, or silence. Taking the scenario above a bit further, ratification is the adoption or confirmation of an act already performed on behalf of a person without prior authorization. So in our example above, if one of broker Hal's buyers indicates an interest in purchasing the property, Broker Hal will contact Charles. If Charles agrees to sell, he "ratifies" an agreement to pay a commission.
Express Agency
This most common way of creating an agency relationship is a written agreement in which the parties involved formally express the intention to form an agency relationship and they outline the terms and conditions of that agreement. A listing agreement is the common form of express written agency agreement between a seller and a managing broker, authorizing the designated agent within the managing broker's office to find a ready, willing and able buyer for the property. A buyer's agency agreement is the common form of express written agency agreement between a buyer and a managing broker, authorizing the designated agent within the managing broker's office to find a suitable property to purchase or rent.
The licensee may disclose to the seller the financial status of the potential buyer customer. Is this statement true or false and why?
True if the agent has knowledge of the buyer's financial status.
What is undisclosed dual agency and what happens in this situation?
Undisclosed dual agency is a dual agency relationship that is not disclosed and agreed to in writing. If this situation occurs, the agent has breached his or her fiduciary responsibilities to the client.
If the agency relationship has not been established by a written agreement, does the relationship exist, and if so, what kind of relationship is it?
Yes, it is an implied agency
A licensee for a seller has a duty to disclose such things except
ability of the purchaser to offer a higher price even if the purchaser is also the licensee's client.
The body of law that defines and regulates the legal roles of an agency relationship is
law of agency.
The key to disclosure deals with the issue of
potential confidentiality.who the agent represents.if the agent knew the pertinent information.
Designated agency is MOST likely to occur when
the buyer and the seller are represented by the same company