LESSON 2: BASIC AGENCY RELATIONSHIP Flashcards
What is an agent in a real estate transaction?
An agent represents another (client or principal) in transactions with third parties. The principal delegates authority to the agent, and the relationship between a broker and a client is called special or limited representation.
What type of agency relationship does a broker have with a client?
The relationship is called special or limited representation, and it exists only for one specific transaction. A special agent does not have the authority to make decisions for or sign anything that binds the client.
What fiduciary duties are owed to the principal by the agent?
The fiduciary duties owed by the agent include obedience, loyalty, disclosure, confidentiality, accountability, and reasonable care.
How is an agency relationship typically formed in real estate?
An agency relationship is typically formed when the broker and client sign a listing agreement or a buyer’s representation agreement.
How does agency work at the broker level?
Agency exists at the broker level, and all of the broker’s agents have fiduciary duties to the broker’s clients. All associates of a broker represent the same client when the broker becomes the agent for a buyer or seller.
What is the relationship between a real estate salesperson and a broker?
A real estate salesperson is an agent of the broker. This is called a general agency relationship, and it covers many transactions. The salesperson has the same duties to the client as the broker.
What is the difference between general agency and special agency?
General agency is on-going and covers many transactions, while special agency is for a specific transaction and does not authorize the agent to bind the client.
What is implied agency?
Implied agency occurs when an agent’s actions or words create an agency relationship without a written agreement. The agent owes duties to the client but the client owes nothing to the agent unless agreed upon.
Who is a third party in an agency relationship?
A third party is a person not party to the agency contract but may be affected by it. The broker and client are the principals to the agency agreement, and the customer is a third party.
Who is a principal in a real estate transaction?
The principal is the person who hires a real estate license holder to represent them in a specific transaction.
What is a principal broker?
A principal broker is an individual licensed by the state Real Estate Agency to run a real estate brokerage. They handle all listings and buyer representation agreements, and the sales agents are agents of the broker.
What authority does a real estate agent have?
A real estate agent has authority granted by the principal, which can be implied or expressed by actions or agreements. The agent’s authority depends on the type of agency relationship.
What is the difference between a universal agent and a general agent?
A universal agent has broad authority in the principal’s affairs, while a general agent has more limited authority in specific areas, like managing property.
What authority does a property manager have?
A property manager has a general agency relationship with the property owner, allowing them to manage the property, collect rents, hire employees, and procure tenants.
What type of authority does a special agent have?
A special agent has the most limited authority, usually in one specific transaction, and may not sign contracts or bind the principal.
What is apparent authority?
Apparent authority arises when the principal gives the impression that the agent has authority, even if the agent does not have it. Third parties rely on this impression in good faith.
What is express authority?
Express authority is the specific, stated authority granted to the agent to perform certain tasks or exercise certain powers as described in the agency agreement.
What is implied authority?
Implied authority is the authority necessary to fulfill the express authority granted to the agent. It includes customary actions required to complete duties in the business.
What happens when unauthorized actions are ratified by the principal?
Once unauthorized actions are ratified by the principal, they cannot sue the agent for acting outside their authority.
What is the difference between apparent, express, and implied authority?
Apparent authority arises from the principal’s actions giving the impression that the agent has authority, express authority is clearly stated, and implied authority is necessary to perform the duties granted.
What is the Independent Contractor Agreement in real estate?
The Independent Contractor Agreement is the contract between a Broker and Sales Agents, giving the agents the authority to act for the broker.
What does a Listing Agreement involve in Texas real estate?
The Listing Agreement is between a seller and broker to sell the seller’s home. It includes the broker’s right to represent the seller and a buyer, if necessary, and the rules for intermediary transactions, commission payments, and splits with sub-agents or buyer’s agents.
What is a Buyer’s Representation Agreement?
It is the contract between a buyer and broker to assist the buyer in purchasing a home. It may include rules for intermediary transactions and commission splits between the broker and seller if the buyer purchases the broker’s listing.
How is commission typically handled in a Buyer’s Representation Agreement?
The buyer agrees to pay a commission to the broker, which is typically paid by the seller or seller’s agent. If not, the buyer pays the difference between the broker’s commission and what the seller or seller’s agent pays.
What is an MLS Agreement?
An MLS Agreement is a contractual agreement between brokers for sharing commissions. If a buyer’s agent shows a property listed on the MLS, they are entitled to the commission offered in the listing, assuming they have a contract with the buyer.
What is General Agency?
A general agency is one where the agent has the power to transact the principal’s affairs in a particular business or location, such as a property manager managing a property with broad authority over decisions and operations.
What is Agency by Estoppel?
Agency by Estoppel occurs when a principal acts in a way that makes it unfair to deny the agent’s authority. It prevents the principal from denying the agent’s actions if a third party reasonably relied on them.
What is Agency by Ratification?
Agency by Ratification is when a principal approves an agent’s actions retroactively, even if the agent was not authorized at the time. This formalizes the relationship after the fact.
What is Agency Coupled with an Interest?
This occurs when the agent holds an interest in the property they are representing. For example, a partner in a company selling property they have a stake in.
What is a special agent in real estate?
A special agent in real estate, like a broker or sales agent, has specific duties related to one transaction and cannot make decisions or sign documents for the client. They provide advice but the client makes the final decision.
What is an Escrow Agent (EA)?
An Escrow Agent is a neutral third party who holds funds or documents for the benefit of both the buyer and seller in a real estate transaction. They must remain impartial and only perform duties outlined in the escrow agreement.
What is the role of an Escrow Agent in a transaction?
The EA holds earnest money, ensures the proper distribution of funds, and remains neutral, ensuring both parties fulfill their obligations before releasing funds or documents.
What are the two types of escrow accounts in real estate?
The two types of escrow accounts are: 1) for holding earnest money (during the home buying process) and 2) for holding funds for taxes and insurance (throughout the life of a loan).
What is an escrow holdback?
An escrow holdback is when funds are held in escrow past the sale’s completion, typically due to unresolved issues like repairs or the seller staying in the home beyond the agreed time.
How does escrow work for taxes and insurance?
After closing, lenders may require an escrow account to hold funds for taxes and insurance. The lender collects payments monthly and pays taxes and insurance premiums when due.
What is the benefit of an escrow account for taxes and insurance?
It ensures that taxes and insurance are paid on time, and it may help avoid penalties or lapses in coverage. Lenders typically require extra funds in the account to cover potential increases in tax or insurance payments.
Is an escrow account always required for taxes and insurance?
Escrow accounts are required for FHA loans, but for conventional loans, borrowers may opt-out if they have a 20% or more down payment. VA loans have additional requirements for opting out.
What is Universal Agency?
Universal Agency grants broad authority to the agent to act on behalf of the principal in all matters, such as buying or selling real estate or personal property. A Power of Attorney is a common example of a universal agent.
What is a Durable Power of Attorney in real estate?
A Durable Power of Attorney allows the agent to act on the principal’s behalf even if the principal becomes disabled, but it does not survive the death of the principal.
What is the role of a Property Manager as a General Agent?
A Property Manager acts as a general agent, handling all ongoing decisions for managing a property, including leasing, maintenance, hiring, and dealing with tenants.
How does a Universal Agent differ from a Special Agent?
A Universal Agent has broad powers to act on behalf of the principal in all legal matters, while a Special Agent has limited authority, typically related to a single transaction (e.g., a real estate broker).
What is a Power of Attorney (POA)?
A Power of Attorney (POA) is a written authorization to act on another person’s behalf in legal, business, or private matters. The person authorizing the other to act is the principal, and the one authorized to act is the agent.
What is a Durable Power of Attorney (DPA)?
A Durable Power of Attorney (DPA) remains in effect even if the principal becomes incapacitated, allowing the agent to continue to act on the principal’s behalf until the principal’s death.
What does “fiduciary” mean in real estate?
“Fiduciary” refers to a relationship in which one person places their trust and confidence in another to act on their behalf. In real estate, it refers to duties such as loyalty, care, and good faith, where the agent acts in the best interests of the principal.
What is the Texas Real Estate License Act?
The Texas Real Estate License Act defines what constitutes acting as a broker or salesperson, including performing or offering services for another person in exchange for compensation, and outlines the duties license holders must uphold in all transactions.
What duties must a real estate license holder uphold to all parties?
A license holder must uphold duties of honest and fair dealing, reasonable care, accounting, and agency disclosure to all parties involved in a transaction.
What is the duty of obedience in real estate?
Obedience requires an agent to follow the lawful instructions of the principal to achieve the principal’s goals. The agent must use their best efforts to fulfill the principal’s specified goals.
What is an example of a violation of the duty of obedience in real estate?
A broker listing a property in online media against the owner’s specific instructions would violate the duty of obedience, and the owner would have the right to cancel the listing.
Can an agent delegate their duties to another person?
Yes, an agent can delegate their duties to another person, but the principal should provide permission for such delegation. However, there are exceptions, such as a client requesting a specific professional, like an attorney, to represent them.
What is the duty of loyalty in real estate?
Loyalty requires the agent to act in the best interest of the principal, putting the principal’s welfare above their own. It includes avoiding conflicts of interest and protecting the principal’s interest in all matters.
What are examples of breaches of loyalty in real estate under TRELA?
Breaches of loyalty can include acting in bad faith, making false promises, receiving undisclosed compensation, accepting profits without consent, or acting in dual capacity as both broker and principal.
How should an agent protect the principal’s interests in a transaction?
An agent should always prioritize the principal’s interests, such as negotiating the best price or informing the principal of any changes in the market or property conditions that could affect the transaction.
What must an agent disclose to the principal?
An agent must disclose all relevant information, including any potential conflicts of interest, such as if the agent owns property that competes with the principal’s interests.
What is the agent’s responsibility regarding confidentiality?
The agent must keep all confidential information about the principal’s motivations, price, and other sensitive details secret, even after the transaction ends, to avoid conflicts of interest in future transactions.
What is the duty of accounting in real estate?
The duty of accounting requires an agent to track and report all funds received and expended on behalf of the principal, especially in handling earnest money or managing a property. The agent must ensure all transactions are documented and balanced.
How does the Texas Real Estate License Act address failure to account for money?
Violations of accounting duties under the Texas Real Estate License Act can result in license suspension or revocation. Agents must properly account for funds, avoid commingling, and ensure the timely deposit of earnest money or other funds into an escrow account.
What does the Texas Real Estate Commission require for trust accounts?
License holders who maintain trust accounts must keep accurate records of all deposits and withdrawals and must avoid commingling funds. Funds must be properly accounted for and remitted within a reasonable time, and the status of these funds must be available at all times.
How does confidentiality relate to the agent’s duty of loyalty?
Confidentiality is considered part of the agent’s duty of loyalty, requiring the agent to keep sensitive information secret and not disclose it without the principal’s permission, even after the agency relationship ends.
What is commingling?
Commingling is the act of placing money that belongs to a client or customer into the personal account of the agent or fiduciary.
Why is commingling illegal?
Commingling is illegal because it can lead to issues with proper attribution of funds, and it could easily slip into conversion or theft of the client’s funds.
What are the consequences of commingling?
Commingling is seen as one of the worst offenses a fiduciary can commit, and can lead to penalties such as license suspension, as seen in the case of Kelvin Kidd.
What is the duty of reasonable care and diligence?
It refers to the obligation for a real estate agent to act with competence and expertise, and be knowledgeable about relevant laws, regulations, market conditions, and other factors that could impact a client’s real estate transaction.
What is the duty of fidelity in real estate?
The agent must represent the client’s interests above all, including their own, and treat all parties fairly while being meticulous in performing their duties.
What is the duty of integrity in real estate?
A real estate agent must act with integrity, exercising prudence and caution to avoid misrepresentation or acts of commission or omission that would deceive clients or third parties.
What is the duty of competency in real estate?
A real estate agent must stay informed about market conditions, relevant laws, and regulations, and must exercise sound judgment and skill in their work.
What are some local laws a real estate agent should be aware of?
Zoning laws, Municipal Utility Districts, Homeowner Associations, construction permits, and local ordinances and regulations.
What federal laws are important for real estate license holders?
The Equal Credit Opportunity Act (ECOA), Americans with Disabilities Act (ADA), Fair Housing Act, Truth-in-Lending Act (TILA), and Real Estate Settlement Procedures Act (RESPA).
What is required for the disclosure of representation?
The agent must disclose who they represent and the type of brokerage services offered at the time of the first substantive dialogue with a client.
What is a “substantive dialogue”?
A meeting or written communication that involves a substantive discussion relating to specific real property, such as location, price, or features.
What is the IABS Notice?
The Information About Brokerage Services Notice, which must be provided to clients during the first substantive communication, outlining the brokerage services available.
What are the six fiduciary duties in real estate?
OLD CAR: Obedience, Loyalty, Disclosure, Confidentiality, Accounting, Reasonable Care and Diligence.
What is the role of a Seller Agent?
The Seller Agent represents the owner or landlord and places the owner’s interests first. They do not represent the buyer or tenant.
What is the role of a Buyer Agent?
The Buyer Agent represents the buyer or tenant and places their interests first, without representing the owner.
What is the role of a Customer?
A customer is not represented by any license holder and is entitled to honesty and fairness from all parties involved.
