Law of Agency: Types of Agents and Relationships

Types of Agency

• A General Agent is authorized to transact every kind of business for the principal, e.g. Property Manager.
• A Special Agent has limited authority to act on behalf of the principal, e.g. Real Estate Agent/Real Estate Broker.
• A Universal Agent has complete authority over any activity of the principal, e.g. Power of Attorney Agent.

Agent/Client Relationships

• The buyer and/or seller is known as the Principal or Client.
• The broker is known as the Agent.
• The salesperson is a Sub-agent of their broker.

Buyer Agency/Buyer Brokerage

• Buyer agency occurs when a purchaser/renter hires a broker to represent them.
• The buyer is the principal and the broker is the agent.
• A Buyer Representation Form should be signed between the buyer and broker.

Fiduciary Duties

• Use the acronym OLD CAR to remember the agent's fiduciary duties to their client:
  • Obedience: Agent shall follow the legal instructions of their client.
  • Loyalty: Agent shall work in the best interests of their client.
  • Disclosure of Information (Full Disclosure): Agent shall promptly communicate all information about the transaction to their client.
  • Confidentiality: Agent shall not reveal confidential information about the client to prospective buyers without the express consent from the client.
  • Accountability: Agent must account for and promptly remit all money or property entrusted to the agent.
  • Reasonable Care and Duty to Account: Agent shall possess the necessary skills and training to perform their requested services.

Agency Disclosure Form

• The Agency Disclosure Form is a written explanation, to be signed by a prospective buyer or seller of real estate, explaining the role that the broker plays in the transaction.
• The form outlines the agent's duties to the client, explains that an agent owes a fiduciary duty to the client, and allows for advance consent to dual agency.
• The form is not required for the sale of vacant land.
• If a seller or buyer refuses to sign the form, the agent should document the names and time, date, and reasons for refusal, and complete a declaration form stating the facts.

Dual Agency

• Dual agency occurs when a broker represents both the buyer and seller in a transaction.
• Dual agency is permitted in New York State, but advanced informed consent by BOTH parties is required.
• Dual agency inherently puts the agent's fiduciary duty of loyalty at risk.
• Undisclosed dual agency is illegal in New York State.

Dual Agency with Designated Agents

• A broker may elect to have designated agents within their office to represent both sides in the transaction.
• This helps reduce the broker's risk of violating their fiduciary duties to the client.

Estoppel

• An agency by estoppel exists when a principal does not stop an individual from representing their interests, thus creating an agency relationship between the two.

Listing Contracts

• A listing contract is created between a seller and a broker (NOT a salesperson).
• The listing agreement creates an express agency relationship.
• Types of listing contracts:
  • Exclusive Right to Sell Agreement: Offers the most security to the broker, and the seller must work exclusively with the broker.
  • Exclusive Agency Agreement: The seller must work exclusively with the broker, but the seller does not have to pay the broker a commission if they find a buyer themselves.
  • Open Listing Contract: The seller is allowed to work with any broker who brings them a buyer, and only the broker who brings a buyer is entitled to a commission.

Commissions

• Real estate salespersons/agents do not collect money or commissions; commissions are paid to the salesperson's broker.
• Commissions are determined between the client and broker and are always negotiable.
• Commissions are typically calculated as a percentage of the sales price (not the listing price).
• A commission is technically earned when the agent finds a "ready, willing and able buyer" for the seller.

Independent Contractor Relationship

• A salesperson must work under a sponsoring broker, and their relationship must be that of an independent contractor.
• To maintain an independent contractor relationship, the following rules must be met:
  • The broker shall not withhold income taxes.
  • The salesperson is responsible for paying their own taxes on commissions.
  • Compensation is not based on hours worked.
  • A salesperson is not required to work in a specific location.
  • A salesperson can have outside employment.
  • Brokers can provide office facilities and supplies, but salespersons are responsible for their own expenses.
  • The broker supervises the salesperson, but does not direct or control their activity.

Vicarious Liability

• Vicarious liability is a situation in which one party is held partly responsible for the unlawful actions of a third party.
• According to Section 442-c of the New York Real Property Law, a broker is vicariously liable for a salesperson's actions only when "the broker had actual knowledge of such violations or if the broker retains the benefits from the transaction after he knows that the salesperson has engaged in some wrongdoing".

Sherman Anti-Trust Act

• The Sherman Anti-Trust Act made the following actions illegal:
  • Price fixing
  • Group boycotts
  • Market allocation
  • Tie-in arrangements

Misrepresentation

• Misrepresentation means making an intentionally false statement to induce someone to contract.
• Misrepresentation consists of:
  • A false representation of a material fact.
  • A person making the false representation knew or should have known it to be false.
  • A person acts or does not act based on the misrepresentation.
  • A person who relies on the misrepresentation in acting or not acting.
• Positive misrepresentation means the broker concealed a material defect from the buyer.
• Self-dealing is another example of positive misrepresentation.