Ch 2 Section 3 Real Estate Agency & Escrow Flashcards
Agency Relationship
Is created when one person (the client) delegates to another (the agent) the right to act on his behalf in a business transaction
Common Laws
-Is a body of laws based on social traditions and common practices that were modified by English court cases
-modified in this country by court cases and laws, rules and regulations passed by state legislatures
In the 1970’s seller representation and the common law doctoring of Caveat Emptor:
-(Buyer beware - no one represented the buyer’s interests) were standard
-National Association of Relators’ (NAR) concept of subagency
-most real estate transactions all brokers worked for the seller ( as agents and sub agents), and no one works for the buyer
In the 1970’s seller representation and the common law doctoring of Caveat Emptor:
-(Buyer beware - no one represented the buyer’s interests) were standard
-National Association of Relators’ (NAR) concept of subagency
-most real estate transactions all brokers worked for the seller ( as agents and sub agents), and no one works for the buyer
-Multiple Listing Services (MLS)
-required to make a blanket unilateral offer of subagency to all other member brokers
-everyone represented the seller, and the buyer was not represented
Special Agent
Is authorized to perform a particular act or transaction.
General Agent
Is authorized to perform many different services within one general field
-a property manager who is authorized by an owner to manage a real estate project on a continuing basis is the general agent of he owner as he will be performing many different types of services in order to carry out his management function
Universal Agent
Is given the legal power to transact matters of all types on behalf of the principal.
A Subagent
Is the agent of an agent.
Fiduciary
Is a person who is placed in a position of trust to act for someone else’s benefit
An agent’s duties to the client fall into the following:
-Loyalty
-Obedience
-Disclosure
-Confidentiality
-Reasonable care and due diligence
-Accounting
Loyalty
-The agent is required to act in the best interest of the client being represented.
-This is the most fundamental duty owed by an agent to a client.
Obedience
All legal instructions of the client must be followed without exception.
Disclosure
All facts, rumors and other information that might affect the client’s decision must be disclosed to the client.
Confidentiality
Any information given to the licensee by the client must be kept confidential if the client could suffer potential harm by disclosing this information.
Reasonable care ad due diligence
-Resonaba care must be taken to state informed about anything that might affect the client’s decision
-Licensees are expected to be more knowledgeable than the average person but are not expected to have the knowledge of other professionals such as lawyers, engineers, or accountants.
Accounting
All money and property held by the licensee for the client must be protected and accounted for by the licensee.
Duties of Clients to Agents
-client also has certain obligations
-consult with the agent, giving appropriate and complete information, and compensating and indemnifying the agent
Availability
-The client needs to be available to make decisions as needs arise
-cannot act without instructions from the client, and the client’s instructions may change due to market conditions
Informed
Any information related to the licensee’s employment should be given to the licensee by the client
Compensation
Any compensation referenced in the employment contract would be due the licensee after completing the object of employment
Indemnification
Under the principle of indemnification, the client should compensate the licensee if actions of the client cause financial harm to the licensee
Agent’s Duty to Customers
-brokers and their agents (salespeople) must never make misrepresentations or false promises to third parties (customers)
-licensees may not misrepresent material facts that they know to be untrue, or should have known to be untrue
-Agents may also have the duty to disclose to customers material facts relating to the property
-May be responsible for information about adjoining parcels, pending zoning changes, pending road or highway plans, and any other fact that might affect the present of future value of the property
An agency relationship may be created in the following ways:
-By express agreement
-By implied agreement
-By ratification
By estoppel
How can an agency relationship be expressed?
Between the parties with contract terms clearly states, orally, or in writing
How can agency relationships be implied?
By actions or statements of the parties. If two people act as if an agency relationship exists then the chances are, if called upon to do so, a court will rule that such a relationship does exist even though there is no formal agreement to that effect
How can agency relationships arise by ratification?
to ratify men’s to approve, sanction, or make valid
How can agency relationships be established by estoppel?
(Recall that estoppel means “stopped’)
An agency relationship may be terminated by:
-death or incapacity of either party
-destruction or condemnation of the property
-expiration of the agency
-mutual agreement
-renunciation by the agent/licensee (possible lawsuits)
-revocation by the principal/client (possible lawsuits)
-by operation of law (such as a bankruptcy of the principal)
-by completion of the agency (performance)
Dual Agency
-A real estate broker who represents both the buyer and the seller in a real estate transaction is a dual agent.
-escrow agents are dual agents
-written, informed consent by all parties to the transaction, problems arise when a broker unintentionally creates an implied dual agency by careless words or actions and lack of proper disclosure
Brokerage firms sometimes have transaction that are called
In house
Designated agency
Where the broker could appoint one sales person to represent only the seller and another salesperson with te same firm is representing the buyer
Escrow
The process whereby money and documents related to a real estate transaction are held in safekeeping until all terms and conditions of the transaction have been met
Escrow Agent
Special and impartial agent of both parties to the transaction
Commingling
The act of mixing or mingling personal funds that should be held in trust for others in a separate escrow account
Conversion
Misappropriation of entrusted funds
Ways that it will NOT be considers commingling ?
Funds deposited in a escrow will necessarily Include monies that will ultimately belong to the licensee
As long as:
- Broker can clearly identify the total funds that belong to him and keeps an accounting of such
- withdrawals are made at least every 6 months
Doctrine of relation-back
That the title passes when the deed is delivered into escrow
Laws require that escrow funds be:
- deposited in a federally insured banking institution in the state where the agent or broker is doing business
- be maintained in the same name by which is the firm is licensed to do business
- be designated as an escrow account by the use of the term escrow.
- bes used for such funds as down payments, earnest money deposits, rental payments collected on behalf of an owner, rental security deposits, and monies advanced by buyers or sellers to cover closing expenses
Principal broker
Usually ultimately responsible for escrow accounts
Escrow money must remain in the escrow account until :
Transaction is consummated or terminated,
if not consumed,
- funds remain in escrow until all parties have agreed in writing to the disposition of the funds
- a court orders their disbursement
- or the broker has given all parties 30 days to protest the written receipted notice that the funds will be disbursed in accordance with the clear and explicit terms of the contract
Escrow account violations
The most common, and most serious, source of licensee discipline
- if accounts are mismanaged = may suspend or revoke brokers license
