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Illinois Real Estate Exam Prep > Principles of Agency > Flashcards

Principles of Agency Flashcards

1
Q

Agency Relationship

A

The relationship between broker & client

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2
Q

Law of Agency

A

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

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3
Q

Principal

A

A client

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4
Q

Agent

A

A broker

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5
Q

Fiduciary

A

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

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6
Q

Customer

A

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

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7
Q

Types of Agency

A

Universal Agency
General Agency
Special, or limited agency

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8
Q

Universal Agency

A

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.

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9
Q

General Agency

A

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.

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10
Q

Special or Limited Agency

A

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.

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11
Q

Written or Oral Listing Agreement

A

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.

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12
Q

Implied Agency

A

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.

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13
Q

Terminating an agency relationship

A

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.

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14
Q

Involuntary Termination

A

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

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15
Q

Agent’s Duties to Clients

A

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

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16
Q

Disclosure of Material Facts

A
  • 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
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17
Q

Agent Duties to Customer

A
  • honesty and fair dealing
  • reasonable care and skill
  • proper disclosure
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18
Q

Intentional Misrepresentation

A

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.

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19
Q

Silent Misrepresentation

A

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

20
Q

Negligent Misrepresentation

A

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.

21
Q

Misrepresentation of Expertise

A

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.

22
Q

Compensation

A

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.

23
Q

Breach of Duty

A

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

24
Q

Forms of Real Estate Agency

A

Single Agency, Dual Agency, Subagency

25
Q

Single Agency

A

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

26
Q

Seller Agency

A

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

27
Q

Buyer Agency

A

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

28
Q

Listing Broker

A

an agent of the seller or owner

29
Q

Listing Agent

A

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

30
Q

Buyer’s Broker

A

A broker who represents a buyer

31
Q

Tenant Representative

A

A broker or salesperson who represents tenants

32
Q

Subagency

A

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.

33
Q

Outside “co-brokers” and agents

A

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.

34
Q

The Broker’s Salesperson

A

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.

35
Q

Dual Agency

A

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.

36
Q

Duties of a Disclosed Dual Agent

A

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.

37
Q

Transaction Broker
Facilitator

A

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

38
Q

Duties of Transaction Broker or Facilitator

A
  • 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.
39
Q

Objectives of Disclosure

A

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

40
Q

Seller Agent Client Disclosure

A

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.

41
Q

Seller Agent Customer Disclosure

A

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.

42
Q

Seller Agent Substantive Contact

A

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

43
Q

Seller Agent Exclusions

A

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

44
Q

Seller Agent Oral Disclosure

A

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.

45
Q

Buyer Agent Client Disclosure

A

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.

46
Q

Buyer Agent Customer Disclosure

A

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

47
Q

Dual Agent Prohibited Disclosures

A

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

Illinois Real Estate Exam Prep (11 decks)

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