Principles of Agency

Question 1

Agency Relationship

Answer 1

The relationship between broker & client

Question 2

Law of Agency

Answer 2

A body of law that defines and regulates the legal roles of this relationship.

Question 3

Principal

Answer 3

A client

Question 4

Agent

Answer 4

A broker

Question 5

Fiduciary

Answer 5

An agent that performs a desired service on the principal’s behalf

Question 6

Customer

Answer 6

A third party in the transaction whom the agent does not represent. The agent works with this prospect in fulfilling the client’s objectives.

Question 7

Types of Agency

Answer 7

Universal Agency
General Agency
Special, or limited agency

Question 8

Universal Agency

Answer 8

the principal empowers the agent to perform any and all actions that may be legally delegated to an agency representative. The instrument of authorization is the power of attorney.

Question 9

General Agency

Answer 9

the principal delegates to the agent ongoing tasks and duties within a particular business or enterprise. Such delegation may include the authority to enter into contracts.

Question 10

Special or Limited Agency

Answer 10

the principal delegates authority to conduct a specific activity, after which the agency relationship terminates. In most cases, the special agent may not bind the principal to a contract.

Question 11

Written or Oral Listing Agreement

Answer 11

The most common way of creating an agency relationship is by listing agreement, which may be oral or written. The agreement sets forth the various authorizations and duties, as well as requirements for compensation. A listing agreement establishes an agency for a specified transaction and has a stated expiration.

Question 12

Implied Agency

Answer 12

An agency relationship can arise by implication, intentionally or unintentionally. Implication means that the parties act as if there were an agreement. For example, if an agent promises a buyer to do everything possible to find a property at the lowest possible price, and the buyer accepts the proposition, there may be an implied agency relationship even though there is no specific agreement. Even if the agent does not wish to establish an agency relationship, the agent’s actions may be construed to imply a relationship.

Question 13

Terminating an agency relationship

Answer 13

Full performance of all obligations by the parties terminates an agency relationship. In addition, the parties may terminate the relationship at any time by mutual agreement. Thirdly, the agency relationship automatically terminates on the expiration date, whether the obligations were performed or not.

Question 14

Involuntary Termination

Answer 14

An agency relationship may terminate contrary to the wishes of the parties by reason of:
- death or incapacity of either party
- abandonment by the agent
- condemnation or destruction of the property
- renunciation
- breach
- bankruptcy
- revocation of the agent’s license

Question 15

Agent’s Duties to Clients

Answer 15

Skill, care, diligence, loyalty, obedience, confidentiality, accounting, full disclosure

Question 16

Disclosure of Material Facts

Answer 16

• the agent’s opinion of the property’s condition
• information about the buyer’s motivations and financial qualifications
• discussions between agent and buyer regarding the possibility of the agent’s representing the buyer in another transaction.
• adverse material facts, including property condition, title defects, environmental hazards, and property defects

Question 17

Agent Duties to Customer

Answer 17

• honesty and fair dealing
• reasonable care and skill
• proper disclosure

Question 18

Intentional Misrepresentation

Answer 18

An agent may intentionally or unintentionally defraud a buyer by misrepresenting or concealing facts. While it is acceptable to promote the features of a property to a buyer or the virtues of a buyer to a seller, it is a fine line that divides promotion from misrepresentation.

Question 19

Silent Misrepresentation

Answer 19

intentionally failing to reveal a material fact, is just as fraudulent as a false statement.

Question 20

Negligent Misrepresentation

Answer 20

An agent can be held liable for failure to disclose facts the agent was not aware of if it can be demonstrated that the agent should have known such facts. For example, if it is a common standard that agents inspect property, then an agent can be held liable for failing to disclose a leaky roof that was not inspected.

Question 21

Misrepresentation of Expertise

Answer 21

An agent should not act or speak outside the agent’s area of expertise. A customer may rely on anything an agent says, and the agent will be held accountable. For example, an agent represents that a property will appreciate. The buyer interprets this as expert investment advice and buys the property. If the property does not appreciate, the buyer may hold the agent liable.

Question 22

Compensation

Answer 22

If an agreement includes a provision for compensating the agent and the agent performs in accordance with the agreement, the client is obligated to compensate the agent. As indicated earlier, however, the agency relationship does not necessarily include compensation.

Question 23

Breach of Duty

Answer 23

may result in:
- rescission of the listing agreement (causing a loss of a potential commission)
- forfeiture of any compensation that may have already been earned
- disciplinary action by state license law authorities, including
license suspension or revocation
- suit for damages in court

Question 24

Forms of Real Estate Agency

Answer 24

Single Agency, Dual Agency, Subagency

Question 25

Single Agency

Answer 25

The agent represents one party in a transaction. The client may be either seller or buyer.

Question 26

Seller Agency

Answer 26

In the traditional situation, a seller or landlord is the agent's client. A buyer or tenant is the customer.

Question 27

Buyer Agency

Answer 27

In this relationship, the property buyer or tenant is the client and the property owner is the customer.

Question 28

Listing Broker

Answer 28

an agent of the seller or owner

Question 29

Listing Agent

Answer 29

An agent who works for the listing broker and who obtained the listing

Question 30

Buyer’s Broker

Answer 30

A broker who represents a buyer

Question 31

Tenant Representative

Answer 31

A broker or salesperson who represents tenants

Question 32

Subagency

Answer 32

a broker or licensed salesperson works as the agent of a broker who is the agent of a client. These agents might include a cooperating licensed broker, that broker's licensed salespeople, and the listing broker's licensed salespeople, all of whom agree to work for the listing broker on behalf of the client. In effect, this agent is an agent of the broker who is agent of the client. This agent owes the same duties to the agent as the agent owes to the client. By extension, this agent owes all the fiduciary duties to the client.

Question 33

Outside “co-brokers” and agents

Answer 33

It is common practice for brokers and salespersons to "cooperate" with a listing broker in finding buyers or tenants. A listing broker, in return, agrees to share the commission with a cooperating broker. It is cooperating brokers who form multiple listing services to facilitate the process of bringing together buyers and sellers.

Question 34

The Broker’s Salesperson

Answer 34

All of the listing broker's salespeople who have agreed to work for the broker to find a customer are subagents of the listing broker and owe the fiduciary duties to the broker and, by extension, to the broker's client.

Question 35

Dual Agency

Answer 35

representing both principal parties to a transaction. The agent represents both buyer and seller or tenant and owner. For instance, if a salesperson completes a buyer agency agreement with a party on behalf of a broker, and the party then becomes interested in a property listed by the broker, the broker becomes a this kind of agent.

Question 36

Duties of a Disclosed Dual Agent

Answer 36

A dual agent's first duty is to disclose the agency relationship to both principal parties or to withdraw from one side of the duality. After disclosing, the agent must obtain the written consent of both parties. If both parties accept the dual agency, the agent owes all the fiduciary duties to both parties except full disclosure, undivided loyalty, and exclusive representation of one principal's interests.

Question 37

Transaction Broker Facilitator

Answer 37

a broker that represents no one in a transaction. In this relationship, the facilitator does not advocate the interests of either party.

Question 38

Duties of Transaction Broker or Facilitator

Answer 38

- account for all money and property received or handled - exercise reasonable skill and care - provide honesty and fair dealing - present all offers in a timely fashion - assist the parties in closing the transaction - keep the parties fully informed - advise the parties to obtain expert advice or counsel - disclose to both parties in residential sale transactions all material facts affecting the property's value - protect the confidences of both parties in matters that would materially disadvantage one party over the other.

Question 39

Objectives of Disclosure

Answer 39

Specifically, the requirement to disclose aims to: - notify clients and customers about whom the agent represents - inform clients and customers of the fiduciary duties and standards of care the agent owes them - inform prospective clients and customers that they have a choice in how they are represented - obtain acknowledgement and acceptance of the disclosure from the principal parties

Question 40

Seller Agent Client Disclosure

Answer 40

Depending on state regulations, an agent who intends to represent a seller or owner must disclose the import of the proposed agency relationship in writing before the listing agreement is executed. The agent must inform the seller or landlord in writing that the agent will be representing the client's interests as a fiduciary, and will not be representing the interests of any potential buyer. Any subsequent sale or lease contract with a customer should confirm this disclosure.

Question 41

Seller Agent Customer Disclosure

Answer 41

A listing agent must disclose in writing to a buyer or tenant that the agent represents the owner in the transaction. This disclosure must occur before or at the first "substantive contact" with the customer prospect. The disclosure must also be confirmed in any subsequent sale or lease contract.

Question 42

Seller Agent Substantive Contact

Answer 42

between listing agent and customer occurs whenever the agent is: - showing the prospect a property - eliciting confidential information from a prospect regarding needs, motivation, or financial qualification - executing a contractual offer to sell or lease

Question 43

Seller Agent Exclusions

Answer 43

Interaction between a seller's agent and a customer is not always substantive. Possible instances that might be excluded from the requirement of disclosure are: - attendance at, or supervision of, an open house, providing the agent does not engage in any of the contacts described above - preliminary "small talk" concerning price ranges, locations, and architectural styles - responding to questions of fact regarding advertised properties

Question 44

Seller Agent Oral Disclosure

Answer 44

If an agent becomes involved in a substantive contact over the phone or in a such way that it is not feasible to make written disclosure, the agent must make the disclosure orally and follow up with a written disclosure at the first face-to-face meeting.

Question 45

Buyer Agent Client Disclosure

Answer 45

An agent who plans to represent a buyer or tenant must disclose the import of the proposed agency relationship in writing before the representation agreement is executed.

Question 46

Buyer Agent Customer Disclosure

Answer 46

A buyer agent must disclose the agency relationship to the seller or seller's agent on first contact. Substantive contact is assumed.

Question 47

Dual Agent Prohibited Disclosures

Answer 47

a dual agent, unless expressly instructed by the relevant party, usually cannot disclose: - to the buyer that the seller will accept less than the listed price - to the seller that the buyer will pay more than the price submitted in a written offer to the seller - the motivation of any party concerning the transaction - that a seller or buyer will agree to financing terms other than those offered