Agency Relationships Slideshow (5)

AGENCY RELATIONSHIPS
CLIENT VS CUSTOMER
 A client is one who engages the professional advice and

services of a licensee as his agent.
 A customer is a person who is not being represented by a

licensee but for whom the licensee is performing ministerial
acts.
MINISTERIAL ACTS
 Ministerial acts are those acts that a licensee may perform

for a person that are informative in nature.
 Ministerial acts do not form a brokerage agreement with the

customer.
EXAMPLES OF MINISTERIAL ACTS
 Responding to phone
 Setting an appointment to view property.
 Conducting an open house
 Giving factual information such as sale price

DEFINITIONS
 A gent: the individual who is authorized and consents to

represents the interests of another person. The sales
associate is a representative of the sponsoring broker. The
broker shares the responsibility to the client with the sales
agent.
 Subagent: the agent of an agent. The agent is the subagent

of the broker. A selling agent may be a subagent of the listing
broker.
 Principal: the party who hires the agent, normally the buyer
or the seller or the landlord or tenant. The principal delegates
to the agent the responsibility of representing the principal’s
interests.
 A gency: the fiduciary relationship between the principal and
the agent in which the agent represents the principal in a
transaction.
 Client: the principal in a real estate transaction who is being

represented by an agent.
 Customer: the third party, that is, the party in the transaction
whom the agent does not represent. The customer may be
represented by a separate agent.
 Co-operating broker: the broker who finds the buyer

 Nonagent – someone who assists the buyer and seller, or
landlord and tenant, in a transaction without representing
either party, also known as a facilitator. A broker is
sometimes considered a nonagent when assisting a customer.
 Single agency – The agent represents only one of the parties

to a transaction. The agent gives advice to the client and owes
fiduciary duties to the client only.
LAW OF AGENCY
 1 . universal agency: authorizes an agent to handle matters of

all types for the principal. This type of agency requires a
power of attorney. A court appointed guardian would be an
example of universal agency.
 2. general agency: authorizes an agent to transact a broad

range of matters concerning a specific area of business for
the principal, for example, managing several investment
rental properties. A property manager is an example of a
general agent.
 3. special agency: authorizes an agent to perform a specific

act or to handle a specific business matter for the client.
CREATION OF AGENCY
 Express agency: based on a formal agreement between the

parties in which the parties express the establishment of an
agency and state the terms and conditions, for example, a
listing agreement. Express agency may be either written or
oral
 Implied agency: occurs when the parties act in such a way as

to indicate that they have agreed to an agency. Implied
agency occurs when the parties behave as though there is an
agency agreement.
FIDUCIARY DUTIES TO CLIENTS
Obedience
Loyalty
Disclosure
Confidentiality
Accountability
Reasonable Care
EXCEPTIONS TO DISCLOSURE
 The client permits the disclosure or the disclosure is required

by law or would reveal serious defect.
 The information becomes public from another source.
 Confidential information does not include material
information about the physical condition of the property.
 A Designated Agent can disclose confidential information to
the employing broker for the purpose of seeking advice or
assistance for a client.
 A licensee shall not be liable to a client for providing false
information to the client if the false information was provided
to the licensee by a customer unless the licensee knew or
should have known the information was false.
AGENCY TERMINATION
 Death or incapacity of either party
 Destruction or condemnation (expropriation) of the property
 Expiration of the terms of the agency
 By mutual agreement
 Renunciation by the agent or revocation by the principal
 Bankruptcy of the principal
 Fulfillment of the purpose for which the agency was created

AGENCY COUPLED WITH AN INTEREST
 An agency relationship in which the agent is given an interest

in the subject of the agency, such as the property being sold.
 An agency coupled with an interest is a non -revocable agency.
 An agency coupled with an interest cannot be revoked by the

principal alone and is not terminated upon the death of the
principal.
SUBAGENCY
(COMMON LAW OF AGENCY)
 Salespersons are general agents of the broker, and therefore
owe fiduciary duties to the broker.
 Because the broker is an agent of the principal, and the

salesperson is an agent of the broker, the salesperson is
considered a subagent of the principal.
 A co-operating broker may also be a subagent of a listing

broker.
 Many states no longer operate under subagency, but have

adopted “Designated Agency”.
DESIGNATED AGENCY
 Designated agency agreements create a contract between

Broker and client where one or more licensees is appointed as
agent of the client.
 A Designated Agent is a licensee named by a Broker as the

agent of a client.
 Many states have instituted designated agency to replace

subagency to clarify who is being represented in a transaction
and who is not.
DUAL AGENCY
 Dual agency is the act of representing two principals to a

transaction at the same time and requires equal loyalty to
both.
 Loyalty would be the most dif ficult fiduciary duty for a dual
agent to perform since he is obligated to get the highest price
for the seller and the lowest price for the buyer – two
conflicting obligations!
 Dual agency is a violation of a fiduciary relationship unless

both buyer and seller are informed of the dual agency and
both agree to it in writing.
A DUAL AGENT MUST NOT DISCLOSE:
 Confidential information that the licensee may know about

either client, without permission.
 The price or terms the seller or landlord will take other than
the listing price without permission of the seller or landlord.
 The price or terms the buyer or tenant is willing to accept

without permission of the buyer or tenant.
DISCLOSURE OF MATERIAL FACTS
AND DEFECTS
 An agent must fully disclose to a prospective buyer all

pertinent material facts and defects that he knows to be
present in the property that he is showing.
 When representing the seller, the agent should inform his

principal of the importance of disclosing any defects in the
property he is of fering for sale.
 Latent Defect is a hidden structural defect that would not be
discovered by ordinary inspection. Failing to disclose a known
defect is a violation of the fiduciary relationship.
 Caveat Emptor: The common law doctrine meaning “let the

buyer beware” and was the rule in the past.
MEGAN’S LAW
 A federal law which establishes a statewide registry

containing information on sex of fenders.
 Many states require real estate agents to provide buyers and

lessees with the website which provides information on sex
of fenders and where they live.
 The website, www.fbi.gov/scams-safety/registry provides

access to every state’s of fender registry.
BUYER’S AGENCY
 Exclusive buyer agency agreement: The buyer is obligated to

compensate the agent whenever the buyer purchases a
property of the type agreed upon in the contract.
 Exclusive agency buyer agency agreement : The broker is

entitled to payment only if he or she locates the property the
buyer ultimately purchases.
 Open buyer agency agreement: This agreement is

nonexclusive and allows the buyer to employ an unlimited
number of brokers. The buyer compensates only the broker
who actually locates the property purchased.
PROCURING CAUSE
 The procuring cause is considered to be the person whose

actions are the primary reason for a sale taking place
 Courts have generally considered the one who actually

secures the buyer's signature on the sales contract to be the
procuring cause.
 Once a seller accepts a ready, willing, and able buyer , the

broker is entitled to a commission.
COMMISSIONS
 The broker's compensation for a sale generally takes the form of

a commission.
 A commission is a percentage of the total sales price of a

property, usually paid by the principal to the broker after the
sale has been made.
 Commissions are always negotiable.
 The exact rate of commission, generally specified in the listing

agreement, is determined by mutual agreement.
 No local boards or government agencies may set commission

rates.
PRICE FIXING
 Collusion among brokers or real estate boards in the fixing of

commission rates
 Price fixing is illegal

BROKER COOPERATION
 When a commission is shared between the listing broker and

the selling broker this is known as broker cooperation
 The selling broker is known as the cooperating broker.
 All payments of any kind to an agent must be made through

the sponsoring broker; this includes gifts or fees for services
in addition to the commission .
 Any fees paid to an agent for services must be paid to the

broker and disclosed to all parties to the transaction.
PRESENTATION OF OFFERS
 The listing agent is obligated to present all of fers to purchase

to the seller as soon as possible.
 If more than one of fer is received by the agent, they should all
be presented as soon as possible, and at the same time.
 In Common Law states (all states except Louisiana), an of fer

is revocable by the of feror until it is signed and accepted by
the of feree.
MISREPRESENTATION
 Giving false information about a property, whether intentionally

or unintentionally is misrepresentation.
 Fraud is the intentional misrepresentation of a material fact.

Fraud includes making false statements and withholding
pertinent information.
 Negligent misrepresentation occurs when the agent should have

known that a statement about a material fact was false.
Ignorance is no excuse.
 Negligent omission occurs when the agent accidentally fails to

perform some act, such as delivering a counteroffer.
 Puf fing is exaggerating a property’s benefits such as views or

landscaping. Puffing is always an opinion.
EMPLOYEE VS.
INDEPENDENT CONTRACTOR
 The salesperson may be either an employee of the broker or
independent contractor.
 As an employee the agent may be required to keep certain hours,

attend sales meetings, meet quotas, etc. The broker is required
to withhold Social Security tax and income tax from wages.
 As an independent contractor the broker has less control over

the agent, and the agent has more independence in setting his
hours and how he conducts business.
 The broker cannot require the agent to keep regular hours or

attend sales meetings, and the agent is responsible for paying
his own taxes including Social Security.
ENVIRONMENTAL HAZARDS
 Encapsulation of asbestos is often safer than removal.
 Radon is a colorless and odorless radioactive gas that is

produced by the natural decay of other radioactive substances.
 Lead Based Paint was used before 1978 and is often found in
older houses. It was banned in 1978.
 Asbestos is a naturally occurring material that was once widely

used in building materials because it is fire -resistant and has
some insulating properties .
 Abatement is the method by which an environmental hazard is

reduced.
SUMMARY OF DISCLOSURES
MUST DISCLOSE:
 Material facts and defects that are known to exist in the property
being shown
 Dual agency
 Agent has an ownership interest in the property
 Environmental hazards including the presence of radon, lead

based paint, or asbestos
 Website for listed sex offenders must be included in all written

purchase agreements and leases
 Website for mold disclosure

MUST NOT DISCLOSE:
Confidential information unless:
 Permission is given by the client

 The information becomes public knowledge by another source
Anything related to the seven protected classes under the

Federal Fair Housing Laws
NOT REQUIRED TO DISCLOSE
 Psychologically impacted property such as a murder or suicide

on the property, or property is thought to be haunted
 There was a burglary on the property
 These MAY be disclosed but you need written permission if

you represent the seller or are a dual agent

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AGENCY RELATIONSHIPS

 A client is one who engages the professional advice and

 A customer is a person who is not being represented by a

 Ministerial acts are those acts that a licensee may perform

 Ministerial acts do not form a brokerage agreement with the

 Setting an appointment to view property.

 Conducting an open house

 Giving factual information such as sale price

 A gent: the individual who is authorized and consents to

 Subagent: the agent of an agent. The agent is the subagent

 Client: the principal in a real estate transaction who is being

 Co-operating broker: the broker who finds the buyer

 Single agency – The agent represents only one of the parties

 1 . universal agency: authorizes an agent to handle matters of

 2. general agency: authorizes an agent to transact a broad

 3. special agency: authorizes an agent to perform a specific

 Express agency: based on a formal agreement between the

 Implied agency: occurs when the parties act in such a way as

 The client permits the disclosure or the disclosure is required

 Death or incapacity of either party

 Destruction or condemnation (expropriation) of the property

 Expiration of the terms of the agency

 Renunciation by the agent or revocation by the principal

 Bankruptcy of the principal

 Fulfillment of the purpose for which the agency was created

 An agency relationship in which the agent is given an interest

 An agency coupled with an interest is a non -revocable agency.

 An agency coupled with an interest cannot be revoked by the

 Because the broker is an agent of the principal, and the

 A co-operating broker may also be a subagent of a listing

 Many states no longer operate under subagency, but have

 Designated agency agreements create a contract between

 A Designated Agent is a licensee named by a Broker as the

 Many states have instituted designated agency to replace

 Dual agency is the act of representing two principals to a

 Dual agency is a violation of a fiduciary relationship unless

 Confidential information that the licensee may know about

 The price or terms the buyer or tenant is willing to accept

 An agent must fully disclose to a prospective buyer all

 When representing the seller, the agent should inform his

 Caveat Emptor: The common law doctrine meaning “let the

 A federal law which establishes a statewide registry

 Many states require real estate agents to provide buyers and

 The website, www.fbi.gov/scams-safety/registry provides

 Exclusive buyer agency agreement: The buyer is obligated to

 Exclusive agency buyer agency agreement : The broker is

 Open buyer agency agreement: This agreement is

 The procuring cause is considered to be the person whose

 Courts have generally considered the one who actually

 Once a seller accepts a ready, willing, and able buyer , the

 The broker's compensation for a sale generally takes the form of

 A commission is a percentage of the total sales price of a

 Commissions are always negotiable.

 The exact rate of commission, generally specified in the listing

 No local boards or government agencies may set commission

 Collusion among brokers or real estate boards in the fixing of

 Price fixing is illegal

 When a commission is shared between the listing broker and

 The selling broker is known as the cooperating broker.

 All payments of any kind to an agent must be made through