Agency/Listings Employment by Public - Part 1 - Chapters 7-8

Question 1

Understand the origin and necessity of the statutorily-mandated AGENCY LAW DISCLOSURE

Answer 1

As a result of Licensing misconceptions about the duties they owed to members of the public and the public’s lack of awareness, the California legislator enacted the agency disclosure law. The goal is to better inform the public and licensees in an effort to eliminate some of these deficiencies.

In creating an agency scheme, the California legislator established uniform real estate terminology and brokerage conduct covering targeted transactions.

The real estate agency disclosure law addresses two separate sets of agency related matters on real estate transactions:

• The Agency Law Disclosure form setting out the RULES OF AGENCY which control the conduct of real estate licensees when dealing with the public in an agency capacity.
• An Agency Confirmation Provision, contained in documents signed by principles used to negotiate the purchase of real estate or the leasing of real estate and Lease agreements with a term exceeding one year, declaring the AGENCY RELATIONSHIPS undertaken by each of the Brokers with the participants in a transaction.

At its core, the Agency Law Disclosure form is a restatement of pre-existing agency codes and case law on agency relationships in all real estate transactions.

Question 2

Know the roles and obligations of all participants involved in a real estate transaction

Answer 2

The separate Agency Confirmation Provision is included in purchase agreements and counter-offers. It advises the buyer and seller of any agency relationships each broker has with the participants in the transaction.

Question 3

Identify when the agency law disclosure is required

Answer 3

The agency law disclosure was created by the California legislature to familiarize Brokers, agents and their principles with the uniform industry jargon. It also reveals the duties owed by the licensees in the sale or lease for more than one year of real estate in targeted transactions involving:

• single family residential proper
• multi-unit residential property with more than 4 dwelling unit
• commercial property
• vacant Land
• life estates
• a ground lease coupled with improvements
• manufactured homes

Further, though not required by Statute, it is recommended on leases for a period exceeding one year as a matter of good practice.

However, there are exceptions. The Agency Law Disclosure is not required on negotiations and agreements concerning:

• Property Management
• financing Arrangements
• lease agreements
• month 2 month rental agreements

Question 4

agency confirmation provision

Answer 4

The AGENCY CONFIRMATION PROVISION is a provision in all purchase agreements and counter-offers disclosing the agency of each broker in the transaction.

Question 5

Agency Law Disclosure

Answer 5

The AGENCY LAW DISCLOSURE is a restatement of agency codes and cases which established the conduct of real estate licensees. It is delivered to all parties in a targeted Sales and Leasing transaction.

The disclosure describes the various agency rules licensees undertake on behalf of their principles and other participants in a real estate-related transaction.

Question 6

buyer’s agent

Answer 6

A BUYER’S AGENT is an agent representing the buyer. Also known as a selling agent.

Question 7

exclusive agent

Answer 7

An EXCLUSIVE AGENT is an agent who is acting exclusively on behalf of only one party in a transaction, either the buyer or the seller.

Question 8

fiduciary duty

Answer 8

A FIDUCIARY DUTY is the duty owed by an agent to act in the highest good faith toward the principal and not to obtain any advantage over their principal by the slightest misrepresentation, concealment, dress or undue influence.

Question 9

seller’s agent

Answer 9

A SELLER’S AGENT is an agent representing the seller. Also known as a listing agent.

Question 10

Differentiate between exclusive and open listing agreements based on duties and earned fee events

Answer 10

A listing agreement is a written employment Arrangement between a client and a licensed real estate broker, authorizing the broker and their agents to diligently perform real estate-related services on behalf of a client in exchange for a payment of a fee.

The agent of a broker has the right to a fee on transactions based on the agents written employment agreement with the broker, not under the separate listing agreement the broker has with the client.

A variety of listing agreements exist, each employing and authorizing a broker to perform real estate related Services under different conditions. The variations usually related to:

• the extent of the Brokers representation
• the type of services to be performed by the broker and their agents and
• the events which trigger payment of a fee.

Question 11

Understand the use of exclusive listing agreements as best practice for client representation

Answer 11

An exclusive listing requires an agent to use diligence in their efforts to fulfill the client’s objectives to locate a buyer, tenant or lender for the property. An exclusive listing has a specified period of employment set by a mandated expiration date of the employment, such as 90 or 180 days after its commencement. In both the exclusive agency listing and the exclusive right to sell / buy listing agreements, they establish the broker and their agents as the sole license real estate representatives of the client.

An exclusive right to sell listing agreement affords a real estate broker the greatest fee protection for their efforts. It is also the most commonly used type of listing. The broker in this case is entitled to a fee regardless of who procures the buyer. Exclusive right to sell listing agreements give a broker and their agents the greatest incentive to fulfill their fiduciary duty and work toward obtaining the client’s goal of locating a buyer who acquires the property. Here, the seller’s broker does not compete with the client to sell the property they work together to achieve the sale.

The buyer benefits under an exclusive right to buy listing due to the greater likelihood the broker will find a particular type of property sought. Brokers also act as a safeguard for the buyer since they:

• have continuous access to all available properties
• investigate and qualified properties as suitable before they are presented to the buyer
• advise the buyer on the pros and cons of each property presented.

Question 12

agency relationship

Answer 12

The AGENCY RELATIONSHIP outlines the Scope of Duties imposed on the broker as arising out of the representation authorized by the employment. The agency relationship carries with it the FIDUCIARY DUTY of LOYALTY and FULL DISCLOSURE owed by the broker and their sales agents to the client. This Fiduciary Duty is also called Agency.

The relationship created by the client and the broker by listing agreement has two distinct legal aspects:

• an employment relationship
• an agency relationship

Question 13

employment relationship

Answer 13

An EMPLOYMENT RELATIONSHIP is the scope of activities the broker and the Brokers agents are to undertake in the employment of a client. The employment relationship established on entering into a listing agreement specifies the scope of activities the broker and the Brokers agents are to undertake any employment and authorizes the broker to carry them out.

The relationship created by the client and the broker by listing agreement has two distinct legal aspects:

• an employment relationship
• an agency relationship

Question 14

exclusive agency listing

Answer 14

An EXCLUSIVE AGENCY LISTING is a listing agreement employing a broker as the sole agent for the seller of real property under terms entitling the broker to a fee if the property is sold through any other broker, but not if the sale is negotiated by the owner without the services of an agent.

The EXCLUSIVE AGENCY LISTING is a hybrid of the open and the exclusive listings. The variation is RARELY USED by Brokers as a practical matter and seems best suited to academic discussion. Under an exclusive agency listing, the client employs the broker as their sole agent as in an exclusive listing. Also the broker is entitled to a fee on any transaction in which the broker, a finder or another broker produces a buyer. However under the exclusive agency listing, and owner retains the right to sell the property to any buyer the owner locate without becoming obligated to pay the broker a fee.

This is the same for a buyer under an exclusive agency listing who finds the property to buy on their own.

Question 15

exclusive right-to-buy listing agreement

Answer 15

An EXCLUSIVE RIGHT TO BUY LISTING AGREEMENT is a written employment agreement by a broker and a prospective buyer which employs a broker to locate qualified properties of the type the buyer seeks to purchase and entitles the broker to a fee when property is purchased during the listing period.

Question 16

exclusive right-to-sell listing agreement

Answer 16

An EXCLUSIVE RIGHT TO SELL LISTING AGREEMENT is a written employment agreement employing the broker as the sole agent to act on behalf of the owner to market the property and negotiate any sale with all potential buyers and their agents. The broker is entitled to a fee regardless of who procures the buyer. during the listing period.

Question 17

fiduciary duties

Answer 17

FIDUCIARY DUTIES are the duties owed by an agent to act in the highest good faith toward their client and not to obtain any advantage over the client by the slightest misrepresentation, concealment, duress or undue influence. A listing agreement contains the clients promise to pay a fee to the broker, this promise is given in exchange for the brokers PROMISE TO USE DUE DILIGENCE in the brokers efforts to meet the client’s objectives, known as their fiduciary duty.

Question 18

guaranteed sale listing

Answer 18

A GUARANTEED SALE LISTING grants the SELLER THE RIGHT to call on the broker to buy the property at a predetermined price if the property does not sell during the listing period. A guaranteed sale listing - is a variation of the exclusive right to sell listing - in which the broker agrees to buy the property if the property does not sell during the listing period.

A broker is prohibited from including an advance fee provision in a guaranteed sale listing.

Question 19

listing agreement

Answer 19

A LISTING AGREEMENT is a written employment agreement used by brokers and agents when an owner, buyer, tenant or lender retains a broker to render Real Estate transactional services as the agent of the client.

The relationship created by the client and the broker by listing agreement has two distinct legal aspects:

• an employment relationship
• an agency relationship

Question 20

net listing

Answer 20

A NET LISTING is a type of listing setting the agent’s fee as all sums received exceeding a net price established by the owner. A net listing is used only with sellers, not buyers. It is structured as either an open or an exclusive type of listing.

The net listing is distinguishable from all other listing arrangements due to the way a Brokers compensation is calculated. In a NET LISTING the broker’s fee is not based on a percentage of the selling price but rather the sellers net sales price excluding broker fees and closing costs to be received by the seller on closing is stated in the listing agreement. The broker’s fee equals whatever amount the buyer pays in excess of the sellers net figure and closing costs.

IMPORTANT - The broker must disclose to the seller the full sales price paid by the buyer and the amount of the broker’s residual fee BEFORE the seller accepts an offer on a net listing. Failure to discloses to the client the benefits the broker receives on any transactions leads to loss of the entire fee.

Question 21

open listing

Answer 21

An OPEN LISTING sometimes calls a non-exclusive listing, is an employment entered into by a broker to render real estate services on a “BEST EFFORTS” basis for a fee to be paid if they achieve the clients objective of the employment before the client or another broker, independent of the broker, first meet the objective, such as locating a buyer or finding a property. Once again an open listing only requires a broker or agent to have a BEST EFFORTS standard for broker performance.

An open listing, sometimes called a non exclusive listing, allows the owner to market the property themselves while employing broker to locate buyers and sell the property.

An Open Listing DOES NOT need to contain an expiration date…. unlike an exclusive agency or exclusive right to buy/sell listing which require inclusion of an expiration date.

Question 22

option listing

Answer 22

An OPTION LISTING is a variation of the exclusive right to sell listing GRANTING THE BROKER an OPTION TO BUY the property at a predetermined price if the property does not sell during the listing period.

The OPTION TO BUY is an agreement granting an irrevocable right to buy property within a specific time period.

Question 23

option to buy

Answer 23

The OPTION TO BUY is an agreement granting an irrevocable right to buy property within a specific time period.

An OPTION LISTING is a variation of the exclusive right to sell listing granting the broker an OPTION TO BUY the property at a predetermined price if the property does not sell during the listing period.

Question 24

quantum meruit

Answer 24

QUANTUM MERUIT is compensation paid to a broker on termination of a listing agreement set as the value of the time, effort and money the broker expended acting on the employment, not based on the lost opportunity of the employment.