Level 9
Two Types of Breaches of Agreement
- Breach due to Actions of the Client - Breach due to Actions of the Agent
Agency Termination by Operation of Law: Performance
- most desirable way to terminate - fulfillment of purpose
Ostensible Agency and Agency by Estoppel are created when the actions or words of one or more individuals lead a third party to believe:
1. Agency exists between two individuals (when it doesn't) AND 2. The responsible individuals fail to take action to correct that impression at the time
Two primary umbrella classifications for the causes of agency termination:
1. Operation of Law (force of law) 2. Act of the Parties
Agency Termination by Act of the Parties: Revocation
A CLIENT (principal) may, at any time, fire their agent, usually by way of written notice
Disclosure of Material Facts
A broker must not withhold material facts concerning a property of which she has knowledge from any purchaser, prospective purchaser, seller, lessee, lessor, or other party to the transaction. essential to creating a contractual environment of informed consent for the buyer.
Financial Condition Scenarios:
A seller who is known to be selling because they are facing the prospects of bankruptcy might lose leverage in the negotiation of the purchase price A buyer who is known to have more than ample funds might find it hard to negotiate down a purchase price A seller who is known to be selling because they've accepted an out-of-state job might find it harder to hold firm on their desired selling price
Third Party
ANY person involved in a real estate transaction who is not your client. include customers as well as all other non-client participants in a transaction.
The duty of disclosure to customers and third parties shows up primarily in terms of:
Agency Disclosure: letting customers and third parties know who you are representing Disclosure of Material Facts: sharing information regarding property condition and client eligibility to buy or sell the subject property
Fiduciary Duties: Obedience
Agents are responsible for obeying their CLIENTS Clients are the decision makers in a real estate transaction, NOT the agents
Customer vs. Third Party
All customers are third parties, but not all third parties are customers
Agency Termination by Act of the Parties: Renunciation
An AGENT may, at any time, decide to leave an agency relationship.
Principal Duties: Cooperation
An agent cannot bind a principal or make decisions on behalf of the principal Doing whatever is necessary to support the agent in their efforts to fulfill fiduciary duties owed to the principal.
Fiduciary Duties: Loyalty
An agent has a fiduciary duty of loyalty to their PRINCIPAL the agent's job is to represent the principal's best interests — even beyond their own
Fiduciary Duty: Disclosure
An agent has the fiduciary duty to disclose to their principal ALL material facts that pertain to the transaction for which the agency relationship was created and/or would be beneficial to the principal.
Major Components of the Consumer Notice
An overview of the various roles and responsibilities an agent can take on in different agency relationships A list of duties all licensees owe to consumers regardless of agency relationships A list of contractual terms that are negotiable between the licensee and consumer AND which should be addressed in an agency agreement An admonishment that, until an agency agreement is signed, a relationship must not be presumed nor should disclosure of financial information occur
Customer vs Client
Any duty owed a customer is also owed to the client, but the reverse is NOT necessarily true! The agent works FOR the client/principal and WITH the customer/third party.
Agency Relationship: consent
BOTH the agent AND the principal must give consent to the agency relationship.
the purpose of agency disclosure is to:
Clarify agency relationships or conflicts of interest early on that might or might not be apparent Prevent oversharing of information due to lack of awareness of existing agency relationships
Common Reasons why a Broker Renounces an Agency Agreement
Client has an abusive attitude Client bailing on showing appointments Client wanting to skirt Fair Housing laws Client not negotiating in good faith
Agency created at the broker level has a number of implications, such as:
Commission: The commission rate is negotiated between the principal and the broker. Listings: If a salesperson switches brokerages, their clients remain with their previously sponsoring broker as their agency relationships were with that sponsoring broker.
Duties That Survive Termination
Confidentiality Accounting
Principal Duties
Cooperation Compensation Indemnification
The Creation of Express Agency
Created when the principal explicitly appoints the broker/agent to act on their behalf. - can be oral or written
Duties to Customers and Third Parties
Disclosure Honesty and fair dealing Reasonable care/skill Accounting
Disclosure vs. Full Disclosure
Disclosure is owed to all, full disclosure is a fiduciary duty reserved for clients
Duty of Accounting
Does not always come into play with customers or third parties you have the same degree of accountability to those customers that you would have to your own clients.
Agency Termination by Operation of Law: Expiration
Expiration of the agency agreement period If the parties wish, the agency relationship can continue but contracts will have to be updated or replaced accordingly.
Pennsylvania, as with most states, recognizes the agency relationship between a broker and their client to be a
Fiduciary relationship
Which agencies have binding authority?
General & Universal, NOT Special
The general agency that exists between a broker and a sponsored licensee:
Gives the licensee a broader (than special agency) scope of authority to act AND Holds the principal (broker) responsible for actions performed by their agent (the sponsored licensee)
Agency Termination by Act of the Parties: Breach of Agreement
If either party fails to uphold their obligations or duties as outlined in the contract without cause, they are considered to have breached the agreement and are potentially liable for resulting damages
Agency Termination by Operation of Law: Death or Incapacitation
If something were to happen to the broker, all listing agreements or buyer-broker agreements of that broker would be rendered null and void if something were to happen to the sponsored licensee, their broker would simply need to reassign a new sponsored licensee to the relationship to act on the broker's behalf. If something were to happen to the principal, both the broker and the licensee would be out of luck.
When Implied Agency Leads to Unintended Agency
If that licensee is showing listings from another brokerage, a buyer-agency scenario has probably been informally and, perhaps, unintentionally created Avoid this
Breach Due to Actions of the Agent
If the agent is not actively pursuing the goals of the agency agreement, they have breached the agreement via what is known as abandonment
Agency Coupled with an Interest
If the broker has a financial or security interest in the subject property at the center of the agency agreement, the principal or client does NOT hold the right to revocation of agency.
Here are a few of the reasons to shy away from oral agency:
It is NOT enforceable against the principal. It IS enforceable against the broker. It is more likely to lead to complaints and/or lawsuits (than is written agency). It does not allow a listing agent to use the MLS.
Principal Duties: Idemnification
It is the principal's obligation to protect the agent from liability when acting on behalf of the principal
Exceptions to the Confidentiality Rule
Material facts regarding property condition Information requested under court order or subpoena Information that the client specifically instructs the agent to share
Commingling
Mixing a client's funds with an agent's personal funds ILLEGAL Ex: An agent is storing a principal's title fee funds in the agent's personal bank account.
Causes for Agency Termination that fall under Acts of the Parties
Mutual agreement Revocation Renunciation Breach of agreement
the broker customer relationship
No agency
Specific Fiduciary Duties an Agent owes a Principal (client):
OLDCAR: Obedience Loyalty Disclosure Confidentiality Accounting Reasonable care/skill/diligence
Agency can be created:
Orally In writing By implication or action
Causes for Agency Termination that fall under the Operation-of-Law include:
Performance (fulfillment of purpose) Expiration Destruction or condemnation Death, incapacitation, or bankruptcy Loss of broker license
Ostensible Agency and Agency by Estoppel can be created:
Prior to any express agency agreement In the absence of an express agency agreement After an express agency agreement has terminated
Fiduciary Duties: Confidentiality
Private information given to the agent by the client will be kept secret (unless the client wants to have the information shared).
Scenarios in which a Real Estate Agent / Broker will act as a Fiduciary for a Client:
Purchasing a home Selling an office building Leasing a condo Managing an apartment building
Agency Termination by Operation of Law: Condemnation
Represents the seizure of private property by government through the use of eminent domain
Special Agency aka limited agency
Restricts an agent's scope of authority to one or more specific acts as directed by the principal — usually towards a single, specific objective, end, or goal. typically not ongoing, but ends upon completion of the goal for which the specific authorized tasks were authorized. most limited in scope.
Examples of things that should be held in Confidence EVEN AFTER Termination of Agency:
Seller motivation for selling Highest offer buyer is willing to make Lowest offer seller would consider Offer history on the property Buyer or seller financial standing
Three Agency Classifications
Special agency General agency Universal agency
Principal Duties: Compensation
The agency agreement between the principal and the agent should spell out how compensation, if any, is earned and when it is due. A listing agreement is NOT a contract to sell the property, but to procure a ready, willing, and able buyer. If the agent produces a buyer who makes a full-price offer without any contingencies or conditions, that agent has earned their commission — regardless of whether or not the seller accepts the offer.
Agency Termination by Operation of Law: Loss of Broker License
The deactivation or revocation of a broker's license invalidates all active written agreements that are in place at the time
Agent Duties to the Sponsoring Broker
The licensee has fiduciary duties to uphold while acting as agent of the sponsoring broker.
According to the Pennsylvania Real Estate Licensing and Registration Act (RELRA), disclosure of interests must be provided in writing to all parties concerned if:
The licensee has ownership interest in the property The licensee represents, or purports to represent, more than one party to the transaction
Agency can be described in terms of:
The manner in which it is created The degree of authority and liability it brings The form that it takes
License holders operating as property managers also require general agency to carry out their duties for a couple of reasons:
Their duties are ongoing and multifaceted within their area of concern, so a wider scope of authority is needed. They typically have the power to bind the principal (property owner) to rental agreements and other needed contracts.
The Creation of Implied Agency
When a party assumes consent to the relationship based solely upon inferences formed by the actions, conduct, and words of either or both parties.
Agency Termination by Operation of Law: Bankruptcy / foreclosure
When a seller files for bankruptcy, they lose control of the property, and the courts decide what will be done with it.
Gratuitous Agency
When an agent agrees to work for no compensation Although no payment changes hands, the agent is still held to all the duties of an agency relationship. Recommended to put the terms in writing
Agency Termination by Act of the Parties: Mutual Agreement/recission
When both parties make this decision, mutually agreeing to end the agency relationship. best form of EARLY termination of agency
3 Methods of Mutual Consent
Written agreement ✏️ Oral agreement 🗣 Action 💃
The classic example of a general agency relationship in real estate can be found in the relationship between
a broker (principal) and a sponsored licensee (agent)
Which of the following is an example of a general agency relationship?
a broker and a sponsored agent
Client vs. Principal
a client is not simply a principal; a client is YOUR principal.
Fiduciary Duties: Reasonable Skill/Care/Diligence
a client trusts their agent to have expertise that they themselves lack, and the agent can be trusted to employ that expertise on the client's behalf
Power of Attorney
a legal instrument used to confer the right of one individual to act on behalf of another.
What document contains an indemnification clause that obligates a seller to indemnify or hold harmless the listing agent for loss or damage, other than that stemming from gross negligence or willful act?
a listing agreement
Customer
a person with whom no agency relationship exists and to whom no fiduciary duties are owed
Universal Agency is usually granted to an agent via
a power of attorney
Relationship between Ostensible Agency and Agency by Estoppel
agency by estoppel occurs in an environment of ostensible agency.
ministerial act
an action performed for another according to established procedures or guidelines and without the need for discretion or individual judgment.
Duty of Honesty and Fair Dealing
an agent should not engage in deceptive behavior in their interactions with customers and third parties
Agency by ratification is created when
an agent takes an unauthorized action on behalf of a principal which IS accepted AFTER the fact by the principal
Express Oral Agency
an express agency agreement formed orally
Fiduciary
an individual upon whom is places the highest levels of trust and confidence when acting on behalf of another
Client
an individual who has signed an agency agreement with a broker, authorizing that broker to represent them in a real estate transaction
Agent
an individual with authority to act on behalf of another
The acknowledgment section found at the end of the Consumer Notice gives the consumer (customer)
an opportunity to sign and date the document, acknowledging receipt
Material Facts
any facts on which a reasonable person would base a contractual decision. ex: financial condition
Express Authority
any verbal or written instructions given by a principal to an agent to carry out specific tasks
A fiduciary is expected to put whose interests ahead of their own?
client
To whom is full disclosure owed as a fiduciary duty?
clients ONLY
Duty of Reasonable Care/Skill
demands that an agent perform to the standards and expectations of all licensed real estate professionals in the state — including when interacting with customers and third parties.
Agency Disclosure
efforts a licensee makes to disclose to others any existing agency relationships/interests they have in a given transaction typically comes into play right upfront due to statutory disclosure requirements
Agency Termination by Operation of Law: Destruction
extinction of the property
the broker salesperson relationship
general agency
The duties owed to clients are _____ than the duties owed to a customer
higher
Accounting in Pennsylvania
if a license holder receives escrow funds in a real estate transaction, that money must be deposited into a separate account set aside for just such reasons.
Obedience is not required if
illegal or unethical in any way
Because the agency relationship is created at the broker level,
not only does the broker owe the client (principal) fiduciary duties, but ALL of that broker's sponsored agents owe that client fiduciary duties as well.
A General Agent is
one who is authorized to manage all of a principal's affairs within certain specified areas has broader authority than a special agent but less than a universal agent. typically someone authorized to represent the ongoing business interests of another
The courts could rule that family, friends, and even former clients enjoy an automatic implied agency because of
previous or ongoing relationships with you.
The disclosure of material facts tends to focus on:
property condition
If you are the buyer's agent, the ______________ is a customer to you.
seller principal
Agency Relationship: control
the agent (broker or sponsored license holder) has authority to act on behalf of the client. Written agreements, contracts, and forms all contribute to the support and clarification underlying this concept
First Substantive Contact
the critical point at which that agency disclosure is required generally occurs at the first face-to-face meeting with the customer
Fiduciary Duties
the duties owed by agents to their clients demands that the client's interests come first — even over that of the agent.
The best tools used to express express agency
the listing agreement the buyer-representation agreement
Informed Consent
the principle that a client or customer must understand and agree to certain actions or agency relationships prior to implementation
The most common example of a special agency in real estate is
the relationship between a real estate broker and their client NOT licensees and their clients
Because a real estate agent is a fiduciary, the duty to disclose encompasses not only all known material facts, but also
those facts the agent should have known Property condition Property value Presence of radon in soil Encroachments Zoning/taxes Buyer or seller motivation (if known)
In Pennsylvania, what is the purpose of the Consumer Notice?
to disclose and educate the consumer about possible agency relationships
Compensation is NOT an
Agency Relationship A broker can potentially be compensated by a number of different people: the client, the customer on the other side of the transaction, another source, or some mix of the above.
a license holder attempting to enter into an agency relationship and/or transaction involving the sale, lease, or purchase of property should disclose:
Any ownership interest (or desired future interest) of the subject property Any relationship to either principal to a transaction Any other material fact that would interfere with the license holder's ability to carry out their duties to all parties to the transaction
Common Law of Agency
The body of laws affecting agency that have come about as a result of custom and/or case law, as opposed to statutory law introduced at the state or federal level.
Agency is created on what level?
The broker level, NOT the salesperson level
Common Non-Client Participants in a Real Estate Transaction:
The buyer (the listing agent's customer) The seller (the buyer agent's customer) The title officer The inspector The loan officer The insurance agent The appraiser
Agency Relationship
a relationship wherein one party authorizes another to represent their best interests and that second party accepts the responsibility given to them. requires mutual consent of both parties
Universal Agency
- most broad type of agency - gives agents the power to act on behalf of the principal AND make decisions on behalf of the principal in all business matters of concern to the principal. - rarely happens in real estate
3 Components to an Agency Relationship
1. Two parties (agent and principal) 2. An agreement 3. Fiduciary obligation
Two Primary Types of Disclosure
1. Agency Disclosure 2. Disclosure of Material Facts
Two Definitions of Principal
1. An individual who authorizes an agent to represent their best interests 2. Any major party to a real estate transaction (buyer, seller, landlord, tenant)
Creation of agency requires two essential components:
1. Consent 2. Control
4 role players in a real estate transaction:
1. Principal 2. Client 3. Customer 4. Third Party
Client and Customer Comparison
A broker works FOR a client. A broker works WITH a customer.
Breach Due to Actions of the Client
A client can breach an agreement by doing such things as being uncooperative (e.g., a seller refusing to make a home available for viewings) or failing to keep commitments (e.g., backing out on a signed offer)
Caveat Emptor 🔍
A legal concept that puts the onus on consumers, including those buying real estate, to inspect the products they buy
Why is it okay for buyer-agents to share some of their client's financial information with the seller and listing agent?
It's a material fact the seller needs in order to properly evaluate that buyer's offer
Fiduciary Duties: Accounting
License holders may not use a client's funds for their personal funds, nor can they store them in the same account. license holder's accounting duties extend to the proper record-keeping of finances and other matters, a level of service which is usually defined by state law.
Specific actions that often fall under a broker's special agency include:
Listing the principal's home on the MLS Showing the principal's home to potential buyers Representing the principal's interests as a buyer at an open house
In a Universal Agency, the agent acts as
attorney-in-fact
Agency relationships are created on the
broker level
If you are the listing agent, the ___________ is a customer to you.
buyer principal
Whether their reasons are valid or not, once a principal expresses a desire to end an agency relationship, the agent must
immediately comply MLS listings and other marketing must be discontinued, and lockboxes and yard signs need to be removed from the property.
Implied Authority vs. Implied Agency
implied agency is a state of agency that should be clarified and elevated to express agency — written or oral — to avoid confusion or problems down the road. Implied authority, on the other hand, refers to legitimate actions an agent takes in order to complete duties that the principal has already expressly authorized Implied authority rarely creates the level of concern that implied agency can.
The preferred manner in which to create agency is
in writing
Oversharing is an issue because
it can serve to weaken the over-sharer's negotiating position in a transaction
If you are the tenant's agent, the _________________ is a customer to you.
landlord principal
an attorney-in-fact, has the actual power to
sign legal documents on behalf of the principal
the broker client relationship
special agency
From the client's perspective, what kind of agent is their broker?
special agent
Pennsylvania Consumer Notice
state-mandated agency disclosure form that licensees should provide to consumers at the first substantive contact/discussion. official state vehicle for proper and timely agency disclosure.
If you are the landlord's agent, the ________________ is a customer to you.
tenant principal
One possible scenario where the employment of universal agency in real estate might occur could be
when a principal is abroad and wishes to give their agent power of attorney to complete the sale of their property in their absence.
special agents are unable to make decisions that
would bind or obligate their principals
