Principles of Agency Flashcards
Principal
One who employs another to act on her behalf
Who does an agent owe a fiduciary duty?
The principal who employs her; MAY OR MAY NOT be who pays her
Agent
Person who is employed to represent a principal
Subagent
Common-law definition is the person who is employed to represent an agent representing a principal
Third-Party/Customer
A party to the transaction who is not a party to the particular agency agreement
Agent’s Duties to Third-Party/Customer
Duties of honesty and fair dealing
Fiduciary responsibilities
Obedience, Loyalty, Disclosure, Confidentiality, Account, and Reasonable Care & Skill (OLD CAR)
What information requires confidentiality?
Price, terms, motivation (PTM)
What does accounting include?
All money and personal property given to the broker
Special Agency
Created when a brokerage firm/agent is authorized to perform a particular act WITHOUT the ability to bind the principal (e.g., seller contracts with a brokerage firm using a listing contract, buyer contracts with a brokerage firm using a buyer brokerage contract)
General Agency
Created when a brokerage firm/agent is authorized to perform a series of acts associated with the continued operation of a particular business; LIMITED POWER TO BIND (e.g., salesperson is licensed to a broker, property manger is employed by a property owner)
Universal Agency
Created when a brokerage firm/agent us authorized to perform in place of the principal; TOTAL power to bind principal
What document is used to create universal agency?
A power of attorney, which appoints the attorney-in-fact
List types of Agency from least comprehensive to most comprehensive
Special agency, general agency, universal agency
Express Agency
created through an oral or written listing or buyer representation agreement
Implied Agency
created through the actions of the parties and SHOULD NOT be used for listing as it is not in writing
Liability for an Agent
Each employing broker is responsible for all professional acts and conduct performed by the broker or by a salesperson/associate broker working under him or her
Material Misrepresentation
Brokers or salespersons MAY NOT misrepresent property or conceal material facts
Disclosure of Representation
A broker must disclose representation, either orally or in writing, prior to showing or receiving any confidential information; if representation changes, a new disclosure form is required at once; must disclose if representing a relative or if licensee is the principal
Dual Agency
When a brokerage represents both the seller and the buyer; requires the written consent of both parties
Property Management
An agreement is signed by the employing broker who will then be a GENERAL agent of the landlord
Property Managers Obligations
Generate income & maintain physical condition of the property; markets space to attract tenants (most important is careful selection of the most qualified candidates); collects rents and security deposits; develops annual budget and prepares financial reports; negotiates leases, including investigating applicants’ applications; DOES NOT spend the profits
Who owns the listing agreement?
The brokerage firm (NOT the individual salesperson)
Exclusive Right-to-Sell Listing
brokerage firm is paid even if the seller or someone else finds the buyer; gives maximum broker protection by eliminating procuring cause disagreements (MOST COMMON)
Exclusive-Agency Listing
Owner retains right to sell himself without paying a commission; if anyone other than the owner obtains the buyer, the brokerage firm gets paid; agent may be less motivated to put the property in the MLS due to competition from the seller
Open/Non-Exclusive Listing
Owner may list with more than one brokerage or may just offer to pay anyone who brings an offer; listing brokerage is paid only if the brokerage obtains buyer AND is the procuring cause of the sale; may be terminated at any time prior to performance
Essential Elements of a Listing
Express agreement (in writing and signed); commissions are negotiable in all cases; price & terms; specific termination date
How does a listing terminate?
- Performance by both parties (closing the sale)
- Expiration on the termination date listed in the contract
- Mutual recession
- Death or incapacity of either employing broker or seller (death of a salesperson DOES NOT terminate the listing)
- Destruction of premises
- Bankruptcy of either broker or seller
- Breach or failure to uphold the agreement by either the broker or seller
What happens if a listing contract expires while the property is under contract?
The listing broker agrees to close the transaction in order to receive a commission
Protection Clause/Extension Clause/Holdover Clause/Safety Clause
This clause provides for a broker to collect a commission for a certain length of time after the termination of the listing, if a buyer the broker procured during the listing purchases the property (NOT to be confused with loan clauses such as alienation, acceleration, or co-insurance); this clause will likely be terminated if the seller signs a new listing
Obligations of the Listing Broker
- Present all written offers
- Complete a written offer, if the buyer requests it
- Only pay referral fees for other brokerage firms, never to the other firm’s broker associates or sales people (NO fees may be paid to unlicensed person)
- Put all agreements in writing, have them signed, and give all parties copies
- Verify that all marketing is correct and truthful (includes disclosure of material facts and property information such as property taxes, HOA dues, etc.); buyer must receive the seller’s property disclosure prior to making an offer
- If a seller misrepresents a LATENT defect in the sellers property disclosure (but, as long as the broker had performed a visual inspection and found no obvious defects, the broker would not be held liable for the misrepresentation
Obligations of all Brokers
- Verify information and statements made buy the buyer and seller, especially if they appear to be untrue
- Complete a competitive marketing analysis (CMA), even if the broker or salesperson believes they know the current value
- Material facts must be disclosed immediately to all parties (e.g., a hail damaged roof)
- Complete a visual inspection of the property looking for material defects and request a seller’s property disclosure (AND, recommend that the buyer have an inspection to check for latent defects and environmental issues; point out other “red flags” like sagging floors, water stains, etc.)
- Answer third-party questions with honesty and clarity
Buyer Representation Agreement
- Exclusive right to represent authorizes one broker to represent the buyer and requires the buyer to compensate the agent when purchasing property through any source;
- Termination is the same as listing agreements; buyer representation agreements must have a definite termination date
- An agent who showed property based on potential commission, not because of the buyer’s needs would be violating the duty of loyalty;
- A buyer who hired an agent using an Exclusive Agency contract would not pay a commission if the buyer found and bought a property on her own accord
Sherman Antitrust Act
Prohibits competitive behavior such as price-fixing
How are commissions determined?
Commissions are ALWAYS negotiable
Can brokers discuss commissions with one another?
NO ABSOLUTELY NOT
