Chapter 4: Types of Laws and Their Purposes Flashcards Preview

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Flashcards in Chapter 4: Types of Laws and Their Purposes Deck (122)
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Common Law

is unwritten law, which is derived from old English common law. It develops from court decisions that tend to reflect the attitudes of the community. The decisions of civil courts establish guidelines that other courts may follow in similar situations.Common law, then, is not a series of statutes passed by a legislature or congress. It is the sum of these court decisions over time. As society changes, court interpretations of events must respond to those changes.


Agency law

derives from common law. Therein lies the greater danger in the practice of real estate; no book can be read and no statute researched. Conduct must be acceptable and conform to standards acceptable to society or be subject to potentially severe consequences.
The words or actions of a party can create an agency relationship; no compensation needs to be paid, no written agreement entered into, no formal contract is required. Once created, the law imposes fiduciary duties on the agent. Violation of these duties may have severe consequences


Fiduciary Duties

is a legal duty to act in the best interest of another. Parties owing this duty are called fiduciaries. The individuals to whom they owe a duty are called principals. A fiduciary is an individual who has the power and obligation to act for another under circumstances which require total trust, loyalty, good faith, and honesty. A fiduciary also has a duty to avoid any conflicts of interest between themselves and their principals or between their principals and the fiduciary’s other clients.


Compensatory and Punitive Damages

Civil courts may impose civil penalties called compensatory damages and, in some cases, impose an additional monetary penalty called punitive damages.
In theory, compensatory damages are those that can be determined from a measurable loss. Punitive damages, are imposed as additional damages to punish the party whose actions gave cause for the suit.


Statutory Law

is based on written statutes that have been enacted by an appropriate unit of government. Statutory law is enforced by criminal courts. Criminal courts often impose monetary fines but are most commonly thought of in terms of imprisonment. F.S. 455 and F.S.475 are statutes enacted by the state legislature. As discussed in a later section, criminal fines and imprisonment are potential penalties for violation of these statutes.


Administrative Law

statutes can authorize the creation and operation of administrative agencies to administer and enforce certain laws. The department of Business and Professional Regulation (the Department), created by F.S. 455, and the Florida Real Estate Commission (the Commission), created by F.S. 475, are examples of administrative agencies empowered by statutes. Administrative agencies may also have the power to levy monetary fines for rules they have enacted in the furtherance of their legislative duties or violation of laws they administer.


Agency Law

is the body of law that addresses the rights, duties, and related obligations arising from a principal-agent relationship. An agent acts on behalf of and represents the interests of another part. Agency relationships are based on trust and confidence and we are similar to that between a husband and wife, doctor and patient, or attorney and client.


An Agent's Employer is the Principal

an agent is entrusted to work on behalf of his or her employer, called a principal, and to represent the principal’s best interests. The principal delegates some authority to the agent that empowers the agent to work on his or her behalf.


Agency relationships may be created

by the words and actions of a licensee. No formal agreement or written document is required and no compensation needs to be promised or paid. This relationship can be created accidentally, inadvertently, or may be implied by words or actions. Once this relationship has been created, the law imposes certain duties on the agent, violation of which could result in severe penalties.


Types of Agency Relationships

1. Special Agent
2. General Agent
3. Universal Agent


Special Agent

authorized under agency law by the employer to perform a single act. The employment contract between the employer and agent establishes the limit of authority granted.


Special agent example

a broker employed under a single agency listing for the sale of a property is authorized to locate a purchaser on behalf of the owner. This is a single act. The broker becomes a special agent of the owner, who is the broker’s principal.


General Agent

has the principal’s authority under agency law to act for him or her on a continuing basis but with authority limited to a specific trade or business.


General Agent example

a broker employed by an investor to manage all of his or her real estate is a general agent of the principal. A sales associate or broker associate is a general agent of his or her broker or owner-developer.


Universal Agent

- is authorized under agency law to act for and represent the principal in all matters, without limitation. All agents have limited authority and cannot perform any act on behalf of their principals, which the principal has not authorized. A universal agent is generally authorized by a power of attorney.


Universal Agent Example

a licensee cannot sign a contract that obligates his or her principal unless the principal has given the licensee a power of attorney to authorize the act.



is not a type of agency; it is an extension of another agency. In other works, a subagent is a party who has been granted authority to act on behalf of another agent.
Under agency law, a subagent has the same duties to the principal as the agent who was empowered by the principal. A sales associate is a general agent of the broker and automatically becomes a subagent of all the broker’s principals. As an agent of the broker, a sales associate has the same duties to the broker’s principals, as does the broker.


The Brokerage Relationship Disclosure Act

Became effective on october 1, 1997, and has since been amended.

The law details alternative relationships that are allowed when providing brokerage services and specifies appropriate disclosure forms that must be utilized for residential transactions when the broker is operating under each alternative.

Violations of the brokerage relationship duties or disclosure requirements may result in administrative and/or civil penalties.



is a member of the public who is or may be a buyer or seller of real property. The customer may or may not be represented by a real estate licensee in an authorized brokerage relationship. Nothing in Florida law states that a customer must be represented by a licensed real estate agent. Customers may represent themselves, if so desired. Anyone not represented in a single agency relationship is a customer.


Single Agent

is a broker who represents, as a fiduciary, either the buyer or seller, but not both in the same transaction.



is the party with whom the real estate licensee has entered into a single agent relationship. A customer becomes the principal once a single agency relationship has been established.


Transaction broker

is a broker who provides limited representation to a buyer, a seller, or both, in a real estate transaction, but does not represent either in a fiduciary capacity or as a single agent.


Consent to Transition to Transaction Broker

to avoid an illegal dual agency, a broker cannot represent both the buyer and seller as a single agent in the same transaction. To assist both parties in a real estate transaction, the licensee must change from a single agent relationship to a transaction brokerage relationship, with written consent of the principal. This is the only brokerage relationship form that must be signed.


What is presumed?

: it is presumed that all licensees are operating as transaction brokers unless a single agent or nonrepresentation (no brokerage relationship) is established, in writing, with a customer.


Residential sales

is any one of the following
• The sale of improved residential property of four units or less
• The sale of unimproved property intended for four units or fewer
• The sale of agricultural properties of ten acres or less
• Leases with options to purchase all or a portion of improved property of four or fewer residential units
• Dispositions of business interests involving property of four or fewer residential units.


A broker may be employed by a member of the public in one of the following three relationships;

• Transaction broker
• Single agent, or
• Nonrepresentation (no brokerage relationship)


Written Disclosure Required

• single agency relationship
• nonrepresentation
• and transition from single agent to transaction broker


Written Disclosure NOT required

• Transaction broker relationship
• Nonresidential transaction


Disclosure Exemptions

Disclosure requirements do not apply when a licensee knows that a transaction broker or single agent is representing a potential seller or buyer.
Disclosure is not required when an owner is selling new residential construction units built by the developer in which the circumstances or settings should reasonably inform the potential buyer that the licensee is action on behalf of the owner. This may occur when the office location, signage, placards, or name badge would indicate the licensee is acting in such a capacity.


The following situations are exempt from the disclosure requirements

• Nonresidential transactions
• The rental or lease of real property, unless an option to purchase all or a portion of the property improved with four or fewer units is given,
• A bona fide open house or model home showing that does not involve eliciting confidential information, the execution of a contractual offer or an agreement for representation, or negotiations concerning price terms, or conditions of a potential sale.
• Unanticipated casual conversations between a licensee and a seller or buyer that do not involve eliciting confidential information, the execution of a contractual offer or agreement for representation, or negotiations concerning price, terms, or conditions of a potential sale.
• Responding to general factual questions from a potential buyer or seller concerning properties that have been advertised for sale.
• Situations in which a licensee’s communications with a potential buyer or seller are limited to providing general factual information, oral or written, about the qualifications, background, and services of the licensee or the licensee’s brokerage firm.
• Auctions
• Appraisals
• Dispositions of any interest in business enterprises or business opportunities except for property with four or fewer residential units.