2 Flashcards
What is the Law of Agency?
Legal Relationship resulting from agreement between agent and principal - Agent shall act for and be subject to the control of the principal
Universal Agent
unlimited authority
General Agent
wide authority, continuous nature (such as a store manager)
Special Agent
limited authority for specific transition - i.e. REAL ESTATE BROKER or attorney
Single Agent
broker engaged by and represents only one party in a transaction
How is agency relationship generally created in real estate?
By a contract (which is an employment agreement)
Does Colorado law require that a real estate contract between broker and principal be in writing? Is this required by common law of agency?
YES, NO
What is Actual Authority of Agent?
authority given either expressly or implied by principal
What is Express Authority?
written or verbal agreement of how agent reps principal
Implied Authority of agent?
authority that is reasonably needed to perform the express authority. (example, store manager wasn’t told they could fire employees, but that authority is implied in order to manage the store). Real estate example: Broker delegates authority to subagent.
Apparent Authority?
third party can reasonably believe an individual has authority to act and bind the principal. Example: Seller tells buyer he always uses Broker A and should only deal with Broker A. Even if Broker A is unaware of desire to sell, if Buyer approaches Broker A then Seller and Broker are legally entitled to rely on Sellers’s assertions of Broker A’s authority.
Principal’s 4 Basic Duties to Agent
- perform contract
- compensate agent (usually commission % of sale)
- reimburse agent for expenses (most real estate contracts DO NOT include reimbursement other than commission)
- Indemnify agent for loss suffered because of agency (principal is liable for damages if they wrongfully terminate the contract - sell with another broker without notifying original agent, for example)
Agent’s 5 Basic Duties to Principal COAL-D
Care, Obedience, Accounting, Loyalty, Disclosure
What does CARE duty of Agent to principal mean?
liable for any loss due to lack of “care” - such as not understanding or explaining basics of real estate (loan types available, listings, pricing, etc. - must demonstrate competence in real estate fundamentals.
What does OBEDIENCE duty of Agent to principal mean?
Perform according to terms of the employment contract. (ex: if seller will not sell for under 200,000, agent must not negotiate for a 195,000 sale)
What does LOYALTY duty of Agent to principal mean?
Agent may not personally profit from the agency relationship other than specified commission. Agent mustn’t disclose (during and after) confidential information of principal if it would be to disadvantage or prejudice of principal. May not have opposing or adverse interests, nor represent another who has opposing interests of principal. Example: agent should not purchase property from principal without principal’s full knowledge and consent - nor represent buyer without seller’s consent. Should not withhold any offers to principal. Must use best efforts to obtain best deal for principal.
Example of breaking which DUTY of Agent to Principal? Agent takes on a listing from a buyer who doesn’t understand value of home. Buys home from seller below market value (or below future value - knowing city will be rezoning district which will increase value) and goes on to sell home for large profit soon thereafter.
LOYALTY
What does DISCLOSURE duty of Agent to Principal mean?
Keep principal fully informed of material facts related to the “agency” (relationship/contract). Example: inform seller of zoning changes or proposed changes that might enhance or lower value.
Agent’s Duties to a 3rd Party
Must notify principal of entering into contract with third party. Agent and 3rd party may both be held liable. Agent’s authority usually only applies to finding a purchaser or finding a property. Broker isn’t responsible if third party doesn’t perform sale contract (buyer doesn’t buy? )
Give and example of TORT
civil wrong - such as fraud. knowingly misrepresenting age or condition of home. listing broker will be liable to third party (buyer).
When is the principal (customer) personally liable for the acts of their agent?
if they authorized them to do the wrongful act or it was within the scope of the employment.
Name 4 ways Agency Relationship can be terminated through Acts of the Parties
- Mutual Consent
- Terms of Contract (ends when property is sold or specified time is up…)
- revocation by principal: principal may cancel at any time (but principal can be held liable for breach if there are no justifiable grounds)
- renunciation by agent - agent can be held liable for breach if no justifiable grounds
Name 5 ways an agency relationship can be canceled by OPERATION OF LAW
- Death: if either party dies
- Insanity: of either party
- Bankruptcy: of either party, automatically terminates the agency unless bankruptcy has no effect on the agency or its purpose.
- Change of Law: law causing the purpose of agency to become illegal will cancel the relationship (example agency to sell liquid in an area where law prohibits liquor sale is enacted)
- Destruction of Subject Matter: ex: house fire
What did the creation of TRANSACTION BROKER concept do to agency law in Colorado in order to clarifity confusing liability and case law?
- No longer a presumption that all brokers work for sellers
- Buyer agency was specifically recognized and defined.
- Buyer/seller, landlord, tenant relieved of liability for acts of a transaction broker (negligence, misrepresentation)
What legislation in Colo 1994 established uniform legal standards and offered choices to buyers, sellers, landlords…, addressed expectations of real estate settings, required timely closure of broker’s obligations, timely disclosure of alternative relationships to the public, requires that agency relationship be entered into voluntarily and knowingly?
Brokerage Relationships in Real Estate Act, Jan 1, 1994
Colorado Revised Statutes (CRS) 12-61-802 through 807 sets forth duties and responsibilities owed to whom? By whom?
Owed to principals by seller agents (or landlord), buyer agents (or tenants) and transaction brokers.
What should seller’s agent NOT disclose to third party without seller’s consent?
- That the seller would accept a lower price
- The seller’s motivations
- Seller’s would agree to other financing terms or
- Material information about the seller
Must a seller agent inform the buyer of ADVERSE MATERIAL FACTS ACTUALLY KNOWN pertaining to physical condition of the property?
Yes.
Must buyer’s agent disclose facts ACTUALLY KNOWN about a property to buyers?
Yes
Must a buyer’s agent inform sellers about adverse facts pertaining to buyers financially ability to perform?
Yes
Must a buyers’ agent conduct an independent inspection of property?
No. However, nothing shall be construed to limit the broker’s responsibility to promote the interest of the buyer with the utmost good faith (i.e. they should advise the buyer to conduct one)
May a buyer’s agent create a subagency?
No. They may cooperate with other agents but may not create a subagency (but Commission Rule E-33 allows another agent to show property, convey offers, provide info without creating sub-agency)
Is DUAL AGENCY a concept in Colorado law?
Not any more. 2003 legislation eliminated the concept of dual agency where broker represents both buyer and seller in a single transaction.
Unless a single agency relationship is established through written agreement by broker and principal, Colorado law established that the broker is what?
Transaction Broker
Written office policies for brokerages must (5 items):
- Apply to all licensees in that office
- be understood and signed by all licensees in office
- include procedures for designation of brokers
- procedures for maintaining client confidentiality
Can a brokerage policy allow for a supervising broker role?
Yes
Are written agency agreements & disclosures required?
Yes. Before engaging in any act requiring a license.
Are written disclosures needed when having preliminary conversations about home value or neighborhood stats?
No
Must a licensee in Colo use Commission Approved Forms when entering into a real estate relationship?
Yes
Can a licensee or broker sign binding real estate agreements on behalf of principal (client)?
No. Not unless a written power of attorney has been created and signed by all parties.
Was “subagency” abolished by the 2003 revision of Colorado Brokerage Relationship Act?
Yes.
