The Law of Agency

Question 1

Define Agent

Answer 1

an individual or an individual of a brokerage business entity who is employed or authorized (and consents) to transact business on behalf of another, usually for a fee or expectation of a fee.

Question 2

The broker firm acts as the agent to?

Answer 2

seller,
buyer,
landlord, or
tenant

Question 3

Define Principal/Client

Answer 3

the individual who hires and delegates to the agent the responsibility of representing the principal’s interests.

Question 4

Define Agency

Answer 4

the fiduciary working relationship that is created between the principal and the agent

Question 5

Define Fiduciary

Answer 5

term describing the role that the agent takes on when the agency relationship is created, a relationship based on the highest form of trust and confidence.
The agent is empowered (within the limitations of the agency appointment) to transact business on behalf of the principal.

Question 6

Define Customer

Answer 6

• the third party with whom the agent deals on behalf of the agent’s principal.
• owed limited duties by the agent, such as “fair and honest dealing” by an agent transacting business on behalf of a principal
• relationship between the agent and the customer is not a fiduciary one.

Question 7

Define Consumer

Answer 7

a member of the general public.

Question 8

When can an agency relationship be terminated?

Answer 8

• Death or incompetence of either party
• Destruction or condemnation of the property
• Expiration of the terms of the agency
• Mutual agreement to terminate the agency
• Renunciation by the agent or revocation by the principal
• Bankruptcy of either party
• Completion or fulfillment of the purpose for which the agency was created

Question 9

Does a contract terminate with death?

Answer 9

Although death will terminate agency, it does not necessarily terminate a contract of sale or listing agreement that was entered into during life by the deceased party

Question 10

Can the principal cancel listing?

Answer 10

In New York, the principal acting in good faith always has the power to cancel a listing at any time.
The principal may, however, be required to reimburse the broker for expenses if the principal cancels before the agency’s expiration.
Damages could be awarded to the agent if the principal acted in bad faith

Question 11

What is latent defect?

Answer 11

• one that is not discoverable by ordinary, reasonable inspection; that is, it is simply not visible to the human eye without further inspection.
• the broker likewise is responsible for disclosing known hidden defects to the buyer.
• Buyers have been able either to rescind the sales contract or to receive damages when latent defects are not revealed.
• Examples of such hidden defects include a leaking underground oil storage tank, faulty wiring, a buried drain tile that causes water to accumulate, and a driveway built partly on adjoining property.

Question 12

When is compensation earned by a broker?

Answer 12

Considered to be earned when the broker has a seller accepting an offer from a ready, willing, and able buyer.
A ready, willing, and able buyer is one who is prepared to buy on the seller’s terms, is financially capable, and is ready to take positive steps to complete the transaction

Question 13

When are broker’s entitled to commission when transaction isn’t complete?

Answer 13

The owners change their mind and refuse to sell (with no preclusive agreement) when a licensee presents a full-price offer with no contingencies.
The owners commit fraud with respect to the transaction.
The owners are unable to deliver possession within a reasonable time.
The owners insist on terms not in the listing (ex: right to restrict the use of the property).
The owners and the buyers agree to cancel the transaction.

Question 14

What does Section 175.21 of the NY RPL state?

Answer 14

• Brokers are fully responsible for the real estate actions of all salespersons licensed under them.
• The broker is the salesperson’s principal, while the salespersons are the agents of the broker.
• Similarly, a cooperating broker not employed by the listing broker, but seeks a buyer w/o representing that buyer, functions as an agent of the listing broker.

Question 15

What are the 6 Primary fiduciary duties?

Answer 15

CC-LOAD
Care
Confidentiality
Loyalty
Obedience
Accounting (documents on file for 3 yrs)
Disclosure

Question 16

Consequence of Misrepresentation

Answer 16

(Brokers obligation of honest dealing)
must be able to prove that
-the broker made a misstatement (oral or written) to the buyer or failed to disclose a material fact to the buyer that should have been disclosed
-the broker either knew/should have known that the statement was not accurate or that the information should have been disclosed
-buyer reasonably relied on statement
-buyer damaged as a result of that reliance

Question 17

Where have broker’s been liable for misrepresentation?

Answer 17

-Termite infestation
-Free of liens and encumbrances— told the buyer that the seller owned the property free and clear of all encumbrances.
Filled land—The broker made an unauthorized statement to the buyer that the property was not a “filled lot.” (The house later sank when the fill settled.)
Easements—broker said not to worry about easements on the property. Three months later, the city used it to lay water pipes.
Zoning— misrepresent property’s zoning.

Question 18

What is the antitrust laws?

Answer 18

Any agreement between 2 or more different firms to set standard rates is serious violation of antitrust laws.
-Real estate licensees must refrain from any discussion of fees except when two firms are cooperating on the sale or lease of a multiple-listed property.
The real estate industry is subject to federal and state antitrust laws.
Antitrust violations can be defined as any business activity that would otherwise result in a monopoly or a restraint of trade that would be deemed a harmful act or that would impede on free enterprise and competition.

Question 19

What are the four distinct acts that violate antitrust laws?

Answer 19

Price-fixing
Group boycotts
Market-allocation agreements
Tie-in arrangements

Question 20

What is price-fixing?

Answer 20

competing brokers get together to set commission rates, rather than letting competition in the open market establish those rates. This is deemed by the federal authorities to be a conspiracy to price fix.

Question 21

What is Group- Boycott?

Answer 21

a conspiracy to boycott that firm and drive it out of business

Question 22

Market -Allocation

Answer 22

competing firms agree to split up an area and refrain from doing business in one another’s territories.

Question 23

Tie-in Arrangement

Answer 23

selling party conditions the sale of an item.

The condition might require the buyer (as a prerequisite to the purchase of that item) to purchase another unrelated item or the seller will refuse the sale of the original item to the buyer.