Chapter 6: Laws of Agency

Secret Profit as unlicensed

A buyer who is not licensed may make a secret profit without violating the law. An unlicensed buyer may buy a piece of real estate without telling the seller he already has someone ready to immediately buy the property from him at a large profit.

Buyer's Agency

A buyer's agency is a real estate brokerage which represents buyers only, and not sellers

Principal Renouncement

A principal cannot revoke an agency (cancel the listing) if the agent has an interest (partial ownership) in the subject of the agency.

Seller's Agent must

A seller's agent must reveal all significant and material information to the seller, including the agent's knowledge that a better offer to purchase is imminent.

Note on Estoppel

An agency relationship may be created by but not terminated by estoppel.

Oral Listing

If a seller wants to pay a commission to a broker under an oral listing, it is permissible for the real estate broker to accept the commission.

Term "as-is"

The term "as is" in an offer refers to things which are observable by the parties.

Fiduciary Duty of a Subagent

a real estate broker acting as a subagent for the seller has a fiduciary duty to the seller, but no fiduciary duty to the agent who appointed him as a subagent.

Subagent

a subagent is an agent who is appointed by the seller's agent to perform some or all of the seller's agent duties.

CREATION OF AGENCY AND AGENCY AGREEMENTS

agency may be created by express agreement, implied agreement, ratification, or estoppel.

AGENCY LAW AND DEFINITIONS

an agent is a person authorized to represent a principal in business dealings with other parties.

Principal and Subagent

if a principal authorizes the appointment of a subagent, the principal is responsible for the acts of his or her subagent.

Limits on Authority

if an agent acts in excess of his authority or misrepresents a property, he is liable to both the principal and the third party.

Agent and Subagent

in describing the relationship between a seller and a salesperson employed by the listing broker, the salesperson is considered an agent of the seller, not a subagent of the seller.

Misrepresentation by Seller

when a broker relies on false information from the seller and the buyer rescinds, the broker is entitled to a full commission and indemnity from legal action by the buyer.

Lawsuits

a buyer sues and collects from the seller. The seller, in turn, sues and collects from the agent (if the seller was unaware of the agent's fraud). In actual practice, the buyer who is the victim of misrepresentation sues both the broker and the seller (an example is, a situation in which a broker misrepresents the income produced by an apartment building).

Tort

a negligent or intentional wrongful act arising from breach of duty.

Changing Terms

a real estate agent may never change the terms of a buyer's offer without the buyer's approval.

Silence - failure to disclose material facts

(usually latent defects - for example, an agent may fail to reveal that a house is built on a septic tank or has a leaky roof). An "as is" clause in a deposit receipt does not eliminate the duty to disclose material facts. A salesperson who is working as an agent for a seller has the responsibility to treat a buyer (customer) fairly and honestly and cannot withhold material information. Likewise, an agent representing the buyer only must also treat a seller (customer) fairly and honestly and not withhold material information. For example: When an agent for a seller discovers many homes in the subdivision have been "red tagged" because of septic tank failures, the agent should immediately disclose the problem to potential buyers.

More on creation of Agency

1. An "estoppel certificate" is a statement by a tenant confirming the terms of the lease and that the tenant has no claims against the landlord. 2. Under limited circumstances, an agency may be created by necessity or emergency. 3. "Subornation" means doing something by lie, trickery, or deceit. An agency relationship may not be created by subornation.

Three Required Steps of Agency Disclosure

1. Disclose - give the seller or the buyer the required agency disclosure form. a. Listing Agent - the listing agent must deliver an agency disclosure form to the seller as soon as practical and before entering into a listing agreement. b. Selling Agent - the selling broker must deliver the form to the buyer as soon as practical and before the buyer signs the offer to buy. The selling broker must provide the form to the seller as soon as practical and before presenting the offer. 2. Elect - choose the agency relationship for the transaction. a. Listing Agent - as soon as practical, a listing agent must disclose to the seller whether the listing agent is acting exclusively as the seller's agent, or as a dual agent represent- ing both the seller and the buyer. b. Selling Agent - as soon as practical, a selling agent must disclose to the buyer and seller whether the agent is acting exclusively as the buyer's agent, exclusively as the seller's agent, or as a dual agent representing both the buyer and the seller. 3. Confirm - the disclosed agency relationships must be confirmed in writing, either in the purchase agreement or in separate writings executed or acknowledged by the seller, the buyer, and the agent(s), prior to or coincident with, the execution of the contract. a. If an agent properly discloses dual agency and obtains consent to represent both parties, he may collect a commission from each of them. b. If an agent does not properly disclose a dual agency to all parties, he may: (1) Be disciplined, (2) Provide grounds for either party to rescind, (3) Not receive any commission.

Dual and Single Agent

1. Dual Agent - represents both the seller and the buyer in one transaction. 2. Single Agent - a single agent is the opposite of a dual agent. A single agency broker is more client-oriented; he represents a buyer only or a seller only, not both at the same time.

General Agent and Special Agent

1. General Agent - an agent authorized by a principal to perform acts associated with an ongoing business for the principal. The essential feature of a general agency is the continuity of service (for example, a property manager for a large apartment complex). 2. Special Agent - an agent who is authorized by a principal to perform a particular act or transaction, without the continuity of service of a general agent. A real estate broker is usually employed as a special agent by a seller to find a buyer for a particular property.

TERMINATION OF AGENCY - agency may be terminated by any of the following:

A. Death or Incapacity - of the agent (broker) or principal (seller or buyer). B. Mutual Consent - of the agent and principal. C. Destruction - of the subject matter of the agency. D. Expiration - of the time given in an exclusive listing terminates the agency. E. Agent May Renounce - the agency, but the agent may be liable for damages. F. Principal May Revoke - the agency, but the principal may be liable for damages. G. Completion of Purpose - for which the agency was established (close of escrow).

Creation of Agency

A. Express Agreement - the agreement is created by words, either oral or written. B. Implied Agreement - the agreement is created by acts and conduct, rather than words. C. Ratification - the principal approves the agency after it has been performed. D. Estoppel - a legal and equitable doctrine under which a person is barred from asserting or denying a fact because of the person's previous acts or words.

RESPONSIBILITIES OF AGENT TO SELLER/BUYER AS PRINCIPAL

A. Fiduciary Duty - an agency relationship creates a fi duciary duty. A fi duciary owes a duty of utmost care, integrity, trust, and loyalty to the principal they represent. A fiduciary must place the best interest of his principal above the interest of all others, even his own. B. Relationship - the fiduciary (agency) relationship between a broker and principal is similar to the relationship between a trustee and beneficiary in a trust deed. The broker representing the principal does not become an attorney-in-fact for the principal. C. Confidentiality - confidential or privileged information (personal financial information) obtained by an agent about his or her principal must be kept confidential forever. The obligation of an agent to keep this information confidential never ends. D. Responsibilities - a principal is responsible for an agent's actions. However, the seller is not liable for misrepresentations made by a selling agent (a buyer's broker in a transaction involving two agents) because in that situation, the buyer is the principal of the selling agent, not the seller

DISCLOSURE OF ACTING AS PRINCIPAL OR OTHER INTEREST

A. Relatives - an agent must reveal if a buyer is related to him. B. Licensee as Principal - whenever he is a principal in a real estate transaction, an agent must disclose to a buyer and/or seller that he has a license. C. Secret Profit - an agent may not make any undisclosed profit in a real estate transaction. An agent in a real estate sales transaction who received a commission from the lender in the transaction must reveal the commission to both the buyer and seller.

Secret Profit for Agents

C. Secret Profit - an agent may not make any undisclosed profit in a real estate transaction. An agent in a real estate sales transaction who received a commission from the lender in the transaction must reveal the commission to both the buyer and seller.

DISCLOSURE OF AGENCY

California's Agency Disclosure law requires agents to disclose the common agency relationships in transactions concerning the sale or a lease for more than one year, of four or less residential units. The agency disclosure form required by this law sets forth disclosure obligations and describes certain duties a licensee owes to a principal in a real property transaction.

Note on subagency

When a seller's agent appoints a subagent with the seller's approval, the subagent represents the seller in a like manner as the original seller's agent. The original seller's agent is not responsible to buyers for the wrongful acts of the subagent. If the seller's agent appoints a subagent without the seller's approval, the seller's agent is liable for the acts of the other agent (the subagent), the seller is not liable.

Agent's rights

a. Compensation - the agent must do one of two things: (1) Find a buyer ready, willing, and able to purchase on the exact terms of the listing, or (2) Secure a binding contract between the buyer and the seller. b. An agent who secures a binding contract, or procures a perfect offer, is entitled to a commission, even if the seller cannot or will not sell. c. An agent must be licensed at the time of sale and have a written employment contract to enforce the listing and collect a commission.

Duties of the agent

a. Disclose all material facts to the principal. If a listing agent discovers during escrow that a buyer (represented by his own agent) recently purchased many similar properties for a far greater price, he should disclose this information to the seller and let the seller decide what action to take. b. A real estate agent must present all offers unless: (1) Patently (obviously) frivolous, or (2) The principal has told him not to present further offers, or certain types of offers, or (3) The property has already sold and escrow has closed. c. An agent must obey the principal's lawful instructions. If the agent does not obey, he is liable for damages.

SCOPE OF AUTHORITY

an agent has authority which the principal actually, expressly, or ostensibly (apparently) confers upon him. A. Actual Authority - the authority a principal intentionally confers upon an agent, or by want of ordinary care, allows an agent to believe himself to possess. B. Express Authority (Specific Authority) - created by an express agreement between the parties (a contract) which precisely delineates the activities the agent is authorized to undertake. C. Ostensible Authority (Implied Authority, Ostensible Agency) - may result from the conduct of the parties. If a broker provided agency services for both a buyer and a seller without the proper disclosures (because he was unaware that both the buyer and the seller considered him their agent), he became an ostensible agent.

Misrepresentation by Agent

an agent who intentionally misrepresents a property to a buyer may be subject to tort liability in a civil action, criminal action, and/or discipline by the Real Estate Commissioner. Additionally, the seller may be subjected to a rescission of the contract and a civil suit for damages because of the fraud.

In-House Sale

describes a transaction in which both the buyer and the seller are represented by licensees working for one broker. In an in-house sale the licensee working with the buyer may not be an agent for the buyer only, because the brokerage already has an agency relationship with the seller. The only legal agency relationships in an in-house sale are "agent for seller" or "dual agent." Dual agency is most often used in in-house sales.

Nature of Agency Relationships

there are three common agency relationships in real estate sales: an agent for the seller only, an agent for the buyer only, or a dual agent for both the seller and the buyer. There is no need to pay consideration to create an agency relation- ship

Agency Relationships

under California real estate law there are three common agency relationships in most real estate sales: an agent for a seller only, an agent for a buyer only, or a dual agent for both a buyer and a seller.