Real Estate Agency Relationships PDF

Real Estate Agency 1 Relationships Learning Objectives After completing this lesson, students should be able to… Discuss real estate agency law and the duties associated with fiduciary relationships Explain the ways agency relationshi...

Real Estate Agency 1 Relationships Learning Objectives After completing this lesson, students should be able to… Discuss real estate agency law and the duties associated with fiduciary relationships Explain the ways agency relationships can be created and terminated Describe agency disclosure requirements and disclosure forms, and emphasize the potential penalties for failure to disclose required information in a timely fashion Identify the different types of agency relationships Summarize the practical aspects of agency relationships in daily business activities, with emphasis on activities and behaviors that could result in disciplinary actions or other penal- ties Suggested Lesson Plan 1. Provide a brief overview of Chapter 1, “Real Estate Agency Relationships,” and review the learning objectives for the chapter. 2. Give students Exercise 1.1 to generate interest in the topic and check their baseline un- derstanding of the issues. 3. Present lesson content: Agency and Agency Law – Agency relationships – Agent’s duties to the principal © 2021 Rockwell Publishing  California Real Estate Practice Instructor Materials – Agent’s duties to third parties – Other legal effects of agency relationships How an Agency is Created and Terminated – Creation by express agreement, ratification, estoppel, or implication – Inadvertent agency (agency by implication) – Termination by actions of the parties – Termination by operation of law Agency Disclosure – Agency disclosure requirements – Acting in accordance with disclosures – Licensee acting as principal EXERCISE 1.2 Agency disclosure Types of Real Estate Agency Relationships – Seller agency – Buyer agency – Dual agency – Finder or middleman EXERCISE 1.3 Agency do’s and don’ts 4. End class with Chapter 1 Quiz. Chapter 1 Outline: Real Estate Agency Relationships I. Agency and Agency Law A. Agency law: body of statutes and court decisions 1. Legal basis for real estate agent’s relationship with clients (and for relationship between broker and salesperson) 2. Dealing with agent is the legal equivalent of dealing with principal 3. Legal effects of agency relationship a. Creates duties to principal and third parties b. Agent’s actions are binding on principal c. Information given to agent is also binding on principal d. Principal is liable for agent’s actions and harm to others 2  Chapter 1: Real Estate Agency Relationships B. Agency relationships 1. Agent is authorized by principal (client) to represent principal in dealings with third parties (sometimes called customers) 2. In real estate transaction, licensee may be acting as: a. Seller’s agent b. Buyer’s agent c. Dual agent (representing buyer and seller) d. Finder or middleman (not representing any party) C. Agent’s duties to the principal are called fiduciary duties 1. Fiduciary: person who occupies position of special trust 2. Agent owes principal five basic fiduciary duties a. Utmost care: skill level of a competent agent b. Integrity and honesty: act ethically while following principal’s instructions c. Accounting: account for client’s trust funds and avoid commingling (or mix- ing) client trust finds with personal funds d. Loyalty: put principal’s interests above everyone else’s i. Agent may not make secret profits or breach duty of confidentiality e. Must disclose all material facts to principal (and third parties) i. Material facts: any information that could affect decision about transac- tion or property ii. Must also disclose conflicts of interest, or any special relationships or ownership interests D. Agent’s duties to third parties: 1. Reasonable care and skill: act as competent agent 2. Good faith and fair dealing: fair and honest actions a. If one party (or agent) makes misrepresentations, other party can rescind transaction and/or sue for damages 3. Disclosure of material facts 4. Visual inspection of property and disclosure of material facts/latent defects a. Law requires agents to perform visual inspection of residential properties with 1 – 4 units; disclose material facts and latent defects b. If unsure whether to disclose, best to do it E. Other legal effects of agency 1. Principal bound by agent’s actions within scope of authority 2. Communications with agent = communications with principal a. Imputed knowledge rule: principal deemed to have same information as agent, even if agent didn’t tell principal 3  California Real Estate Practice Instructor Materials b. Vicarious liability: principal liable to third parties for harm from agent’s ac- tions, whether or not principal approved actions i. Joint and several liability: agent and principal held jointly liable for dam- ages; if principal innocent, she may sue agent II. How Agency is Created and Terminated A. Agency created by the consent of both parties 1. Express agreement: actual agreement between principal and agent a. Listing agreement, buyer representation agreement, or property management agreement 2. Ratification: person performed acts before agency existed (no formal authority), but principal gives approval after 3. Implication: agent’s actions led party to believe that agent represented that party 4. Estoppel: principal can’t claim lack of agency if it would be unfair to third party (principal allowed third party to believe agency existed) B. Agency relationship also created inadvertently (without consent) 1. Agency by implication occurs when agent’s actions lead buyer to believe person is buyer’s agent a. Unfair to buyer to deny relationship, but if agent is already representing sell- er, inadvertent dual agency is created b. Disclosure laws designed to help prevent this C. Agency can be terminated by parties’ actions or by operation of law 1. Termination by the parties a. Mutual agreement: principal and agent agree to end relationship b. Revocation: principal may revoke agent’s authority at any time; if breach of contract, revoking party could be liable c. Renunciation: agent also has right to terminate agency at any time, without principal’s consent 2. Termination by operation of law: occurs without any action by principal or agent a. Expiration: agent’s authority ends on expiration date, or within reasonable time, if no set date b. Fulfillment of purpose: agency may end before expiration date if purpose achieved (example: listed house closes) c. Death or incapacity: agency ends automatically if principal dies or becomes legally incapacitated (even if agent doesn’t know) d. Extinction of subject matter: if property that is the focus of agency ceases to exist, agency ends 4  Chapter 1: Real Estate Agency Relationships III. Agency Disclosure A. California’s disclosure law: residential property 1 – 4 units 1. Real estate agents must give consumers two forms: a. Agency disclosure form b. Agency confirmation statement B. Agency disclosure form (C.A.R. Form AD) 1. Consumer form explaining agency laws and duties 2. Agent required to give form to: a. Seller before listing agreement signed b. Buyer before offer to purchase signed 3. Form must be signed by agent and person receiving it; agent retains copy C. Agency confirmation statement (C.A.R. Form AC) 1. Separate form OR separate paragraph in purchase agreement; each agent disclos- es party represented in transaction 2. Must be signed by agent(s) and buyer/seller before purchase agreement signed D. Agents must act in accordance with these disclosures; conduct inconsistent with dis- closures may result in disciplinary action E. Licensee may be a principal in a real estate transaction (example: agent decides to buy one of his own listed properties) 1. If unusual circumstances, agents should disclose all details in writing and encour- age other parties to get professional advice 2. Agents should also follow brokerage policies EXERCISE 1.2 Agency disclosure IV. Types of Agency Relationships A. Seller agency usually established with listing agreement 1. Agent owes seller fiduciary duties; must also treat buyer fairly and in good faith a. Even if listing agent has pre-existing (or any other special) relationship with buyer, she must maintain primary duty to seller B. Buyer agency usually created with buyer representation agreement 1. Main advantages are objective advice and help with negotiations 2. Buyer representation agreement should be in writing and describe rights and du- ties (C.A.R. Form BRE) 3. Compensation options for buyer’s agent a. Seller-paid fee (through commission split) b. Buyer-paid fee i. Hourly fee, hire agent as consultant ii. Percentage fee (of purchase price) 5  California Real Estate Practice Instructor Materials iii. Flat fee (payable when purchase made) iv. Retainer (upfront, nonrefundable payment that will be credited against fees earned by agent over time) v. Hybrid approach (commission split plus other buyer-paid fees) C. Dual agency occurs when agent represents buyer and seller in the same transaction; dual agent owes fiduciary duties to both principals 1. Difficult to fully represent either party; certain information must be withheld from each party 2. State law prevents agent from disclosing confidential information unless written consent obtained 3. In-house transaction exists when listing agent and selling agent work for the same broker 4. Dual agent must get informed written consent from both parties, or risk disciplin- ary action D. Licensee acting as finder or middleman has no agency relationship with either party 1. Finder’s role limited to introductions only; any additional involvement (such as negotiations) could create agency 2. Both licensees and unlicensed individuals can receive finder’s fees EXERCISE 1.3 Agency do’s and don’ts Exercises EXERCISE 1.1 Preliminary quiz Read the following True/False questions aloud to students and have them jot their an- swers down on a piece of paper; discuss the answers together. 1. In California, it’s illegal for a real estate licensee to represent both parties in a real estate transaction. 2. A person can become another person’s agent without giving express consent to the agency. 3. An agent is prohibited from disclosing confidential information about a principal even after their relationship has ended. 4. An agent’s fiduciary duties require him to put his principal’s interests before all other interests, except for his own. 5. If a buyer’s agent receives compensation from the seller, the agent must represent both the buyer’s interests and the seller’s interests in the transaction. 6  Chapter 1: Real Estate Agency Relationships Answers: 1. FALSE. Dual agency is legal in California, if both parties are informed and give their consent. 2. TRUE. An inadvertent agency relationship can be created by a person’s actions, even though she hasn’t expressly agreed to the relationship. 3. TRUE. The duty of confidentiality continues even after the agency relationship has terminated. 4. FALSE. Fiduciary duties require an agent to put the principal’s interests above all other interests, including the agent’s own interests. 5. FALSE. A buyer’s agent is allowed to receive compensation from the seller (as in a commission split arrangement) without legally assuming any agency duties to the seller. EXERCISE 1.2 Agency disclosure Discussion Prompt: As a class or in small groups, have students consider the following scenario and explain at which points each of the agents is required to make agency disclosures to each party. Drawing a time line on the board may be helpful. On March 15, a seller decides to list his house for sale with Focus Realty. An agent at Focus, Sue Park, has the seller sign a listing agreement, then promptly submits the listing information to the MLS. On April 19, Ronald Suarez, an agent with Hometown Real Estate, shows the home to a buyer he’s working with. On May 1, the buyer tells Suarez he wants to buy the house. Suarez prepares an offer (a purchase agreement form), the buyer signs the form, and Suarez submits it to the listing agent, Park, who presents it to the seller the same day. On May 4, the seller tells Park, the listing agent, that he wants to accept the offer. She has him sign the purchase agreement form and then calls Suarez to let him know. The closing date will be June 12. 1. When does Sue Park, the listing agent, have to give the seller a copy of the agency disclosure form? When and how is she required to disclose her agency status in this transaction to the seller? 2. When does Ronald Suarez, the selling agent, have to give the buyer a copy of the agency disclosure form? When and how is he required to disclose his agency status in this transaction to the buyer? 7  California Real Estate Practice Instructor Materials 3. Does Park, the listing agent, have to make agency disclosures to the buyer? If so, when, and what form do they take? 4. Does Suarez, the selling agent, have to make agency disclosures to the seller? If so, when, and what form do they take? Answers: 1. Listing Agent and Seller. Park, the listing agent, must fill out and sign a copy of the agency disclosure form and give it to the seller before he signs the listing agreement. In this case, that’s on or before March 15. (Note that any time this form is provided, it must be signed by both the agent and the party, and the agent must give the party one copy and keep another for her records.) Park must disclose her agency status in this particular transaction—whether she’ll be acting only as the seller’s agent, or as a dual agent—to the seller as soon as it’s practical to do so. That might occur (for example) when they first discuss the buyer’s interest in the property, or when Park presents the buyer’s offer to the seller (May 1). This disclosure may be in writing or spoken, as long as the seller receives and signs a written agency confirmation statement before or at the same time that he signs the purchase agreement form to accept the buyer’s offer (May 4). The confirmation statement is usually a provision in the purchase agreement form. It must be signed by the agent(s) as well as the parties. 2. Selling Agent and Buyer. Suarez, the selling agent, must give the buyer an agency disclosure form as soon as it’s practical to do so—preferably when he first starts showing the buyer homes, but in any case before the buyer signs the offer to purchase (May 1). Suarez must disclose his agency status in this transaction to the buyer as soon as it’s practical to do so, preferably when he shows her the property. Again, the disclosure may be in writing or spoken, as long as the buyer signs a written con- firmation statement before or at the same time that she signs her offer to purchase (the purchase agreement form). 3. Listing Agent and Buyer. A listing agent doesn’t have to give a buyer an agency disclosure form unless she’s representing the buyer as well as the seller. However, any real estate agent involved in a transaction is required to disclose to all of the parties which one(s) the agent is representing. In the agency confirmation state- ment, the listing agent makes this disclosure to the buyer as well as the seller. 4. Selling Agent and Seller. The selling agent is required to give a general agency disclosure form to the seller as well as the buyer. This must be done as soon as it’s practical to do so, and before the buyer’s offer is presented to the seller (May 1). If the selling agent isn’t dealing with the seller directly, he can deliver the form to the seller through the listing agent or by certified mail. In the agency confirmation statement, the selling agent discloses which party he’s representing to both the seller and the buyer. 8  Chapter 1: Real Estate Agency Relationships EXERCISE 1.3 Agency do’s and don’ts Discussion Prompt: For each of the following actions, indicate whether it’s something a real estate agent is or is not allowed to do. 1. Receiving compensation from the seller even though you signed a buyer repre- sentation agreement with the buyer 2. Disclosing material facts or latent defects, even if it hurts the client’s chances of selling the property 3. Having the parties sign the agency disclosure form and agency confirmation state- ment at closing, to save time 4. Representing both the buyer and the seller, with their written consent 5. Withholding material information from your principal because you don’t want to upset her 6. Withholding material information from the other party because you think it might confuse him or scare him off 7. Disclosing confidential information about a past client that is helpful to a new client 8. Using information from another agent’s visual inspection of a property instead of doing your own inspection 9. Receiving compensation for just introducing a buyer and a seller (even though you don’t do any other work on the transaction) 10. Acting in ways that contradict your agency representation disclosure Answers: ALLOWED: 1, 2, 4, 9 NOT ALLOWED: 3, 5, 6, 7, 8, 10 9  California Real Estate Practice Instructor Materials Chapter 1 Quiz 1. Which of the following is not one of the com- 5. Which of the following would be considered a mon forms of real estate agency relationships material fact that an agent would be required in California? to disclose? A. Net agency A. The roof leaks during rainy weather B. Seller agency B. The house was the site of a suicide five C. Dual agency years ago D. Buyer agency C. The house was once rented by gang mem- bers D. The house was once the headquarters for a 2. Which of the following situations does not doomsday cult involve dual agency? A. A listing agent gives advice to prospective buyers about pricing for their offer 6. A principal may be held liable for the actions of B. A licensee introduces a seller to a prospec- a real estate broker and a broker’s salesperson tive buyer without providing any additional under the doctrine of: services A. caveat emptor C. A buyer and seller consent in writing to be B. imputed knowledge represented by the same broker C. vicarious liability D. A broker employs both the selling agent, D. receivership who is representing the buyer in this trans- action, and the listing agent 7. A buyer’s agent has a fiduciary duty to: A. advise the buyer on how best to take title 3. Under California law, all of the following B. use utmost care, integrity and honesty, and would have to be disclosed as latent defects loyalty when dealing with the buyer except: C. tell the buyer which title company to use A. indications of flooding found during an D. tell the seller the maximum price the buyer agent’s visual inspection will pay for the property B. a deep scratch in the middle of the hard- wood floor in the front hall 8. An agent’s duty to disclose which party he is C. the property was the site of an illegal drug representing in a transaction is owed to: lab D. the roof of the house leaks during heavy A. the seller rains B. the buyer C. Both A and B D. None of the above 4. Proper agency confirmation may be made: A. anywhere in the purchase agreement 9. The legal theory that makes a principal liable B. in a separate document for all information her agent has (even if the C. in a separate paragraph in the purchase agent didn’t actually give the principal the agreement information) is called: D. Both B and C A. vicarious liability B. virtual knowledge C. imputed knowledge D. power of attorney 10  Chapter 1: Real Estate Agency Relationships 10. When one agent represents both the buyer and 15. A buyer’s agent may be compensated by: seller in a transaction, it is known as: A. seller-paid fees only A. dual agency B. buyer-paid fees only B. a third party transaction C. broker-paid fees only C. an in-house transaction D. both seller-paid and buyer-paid fees D. a conflict of interest 11. In California, the written disclosure that speci- fies which party each agent is representing in the transaction is called the: A. listing agreement B. purchase agreement C. agency disclosure form D. agency confirmation statement 12. An agency relationship can be terminated by: A. revocation B. renunciation C. expiration D. All of the above 13. Because of the fiduciary duty of loyalty, an agent must: A. keep secret profits out of the client’s trust account B. put the interests of third parties above his own interests C. keep confidential information from third parties D. refuse net listings 14. California law requires an agent to give a copy of the agency disclosure form to: A. the seller, before a listing agreement is signed B. the buyer, before an offer to purchase is signed C. both parties before the purchase agreement is signed D. Both A and B 11  California Real Estate Practice Instructor Materials Answer Key 1. A. The main forms of real estate agency 7. B. A buyer’s agent has fiduciary duties to in California are seller agency, buyer the buyer, which include the duties of agency, and dual agency. utmost care, integrity and honesty, ac- counting, and loyalty. A buyer’s agent 2. B. When a real estate licensee acts as should not advise the buyer in ways “finder” or “middleman” (merely in- that exceed the agent’s authority or ex- troducing a buyer and a seller to each pertise. other), it doesn’t create any agency re- lationship between the licensee and the 8. C. An agent’s duty to disclose who she is buyer or the seller. representing in a transaction is owed to both parties in the transaction, the 3. B. The law requires disclosure of known seller and the buyer. latent defects, problems that would not be observable in an ordinary inspec- 9. C. The imputed knowledge rule holds that tion of the property. It does not require an agent’s knowledge is imputed (at- disclosure of problems that aren’t hid- tributed to) to the principal, whether or den or easily overlooked (sometimes not the agent actually communicated called patent defects). Still, it’s safer to the information. disclose obvious problems anyway. 10. A. Dual agency occurs when the same 4. D. The required agency confirmation agent represents both the buyer and disclosure may be included in the seller in a transaction. An in-house purchase agreement, as long as the in- transaction occurs when two agents formation is in a separate paragraph on working for the same broker represent the form. Alternatively, the disclosure the seller and buyer in the same trans- may be made in a separate document action. that is signed by all the parties. 11. D. The agency confirmation statement 5. A. An agent must disclose latent defects discloses which party each agent is that would not be discovered during an representing in the transaction. ordinary inspection, such as a leaking roof. It is not material if the house was 12. D. An agency relationship can be termi- the site of a crime, gang activity, or nated in any of the ways listed. political or religious activity. 13. C. The duty of loyalty is owed only to the 6. C. The doctrine of vicarious liability im- principal. Among other things, it re- poses liability on a principal for any quires the agent to keep the principal’s harm caused by the principal’s agent or confidential information confidential. subagent, even if the principal didn’t approve or know of the agent’s acts. 12  Chapter 1: Real Estate Agency Relationships 14. D. The agency disclosure form must be delivered to the seller and the buyer as stated in options A and B. The agency confirmation statement must be delivered to both parties before the purchase agreement is signed. 15. D. A buyer’s agent may receive compen- sation from either (or both) the seller and the buyer, depending on the terms of the agreement. The agent’s duties to the buyer are unaffected by this com- pensation. 13  California Real Estate Practice Instructor Materials PowerPoint Thumbnails Use the following thumbnails of our PowerPoint presentation to make your lecture notes. California Real Estate Practice Lesson 1: Real Estate Agency Relationships © 2021 Rockwell Publishing 1 Introduction Definitions Agent: Someone authorized to represent another person in dealings with third parties. Principal: Person who hires agent to represent him. ⚫ Seller’s agent: lists property ⚫ Buyer’s agent: helps buyer find home © 2021 Rockwell Publishing 2 Introduction Definitions Dual agent: Represents both parties in the same transaction. Finder or middleman: Agent involved in transaction without representing either party. © 2021 Rockwell Publishing 3 14  Chapter 1: Real Estate Agency Relationships Real Estate Agency Duties Agent is fiduciary Fiduciary: Person who occupies position of special trust in relation to another person. Agent owes fiduciary duties to her principal (buyer, seller, or both). © 2021 Rockwell Publishing 4 Real Estate Agency Duties Duties owed to principal Agent owes principal five common law fiduciary duties: ⚫ utmost care ⚫ integrity and honesty ⚫ accounting ⚫ loyalty ⚫ disclosure of material facts © 2021 Rockwell Publishing 5 Duties to Principal Utmost care Agent must: ⚫ act with utmost care (skill and care expected of competent real estate agent) © 2021 Rockwell Publishing 6 15  California Real Estate Practice Instructor Materials Duties to Principal Integrity and honesty Agent must: ⚫ act ethically while carrying out the principal’s instructions © 2021 Rockwell Publishing 7 Duties to Principal Accounting Agent must: ⚫ handle trust funds properly ⚫ avoid commingling © 2021 Rockwell Publishing 8 Duties to Principal Loyalty Agent must: ⚫ put principal’s interests above anyone else’s ⚫ not make any secret profits © 2021 Rockwell Publishing 9 16  Chapter 1: Real Estate Agency Relationships Loyalty Confidentiality Agent may not disclose principal’s confidential information to other parties. Confidential information: ⚫ given by principal in confidence, and ⚫ acquired during course of agency. Confidential information can’t be disclosed even after agency ends. © 2021 Rockwell Publishing 10 Loyalty Confidentiality Information principal shared in confidence not confidential if: ⚫ it’s already general knowledge, OR ⚫ principal is legally required to disclose it, such as a latent defect. Latent defect: Any problem not discoverable by ordinary inspection. © 2021 Rockwell Publishing 11 Duties to Principal Disclosure of material facts Agent must disclose all material facts to principal. Material fact: Fact likely to affect decision about transaction, including: ⚫ all written offers to purchase ⚫ any conflicts of interest ⚫ matters affecting value of property © 2021 Rockwell Publishing 12 17  California Real Estate Practice Instructor Materials Summary Duties to Principal Utmost care Integrity and honesty Accounting Loyalty Confidential information Disclosure of material facts © 2021 Rockwell Publishing 13 Real Estate Agency Duties Duties owed to any party Agent owes following duties to any party in a transaction: ⚫ reasonable care and skill ⚫ good faith and fair dealing ⚫ disclosure of material facts © 2021 Rockwell Publishing 14 Duties to Any Party Reasonable care and skill Agent must: ⚫ act with reasonable care and skill (level expected of competent real estate agent) Agent who negligently causes harm may be liable for damage. © 2021 Rockwell Publishing 15 18  Chapter 1: Real Estate Agency Relationships Duties to Any Party Good faith and fair dealing Agent must not make inaccurate statements or misrepresentations. ⚫ Includes unintentional as well as intentional misrepresentation. © 2021 Rockwell Publishing 16 Duties to Any Party Disclosure of material facts Material facts must be disclosed to prospective buyers. Agent may be liable for failing to disclose if: ⚫ agent was actually aware of fact, and ⚫ fact wasn’t readily apparent to other party. Buyer can’t waive right to disclosure of latent defects (even with an “as is” clause). © 2021 Rockwell Publishing 17 Disclosure of Material Facts Property inspection Latent defects must be disclosed in transfer disclosure statement (required in most one- to four-unit residential sales). Agent isn’t required to search for problems such as title issues or parties’ financial position. ⚫ But California law does require visual inspection and disclosure of any observed defects. © 2021 Rockwell Publishing 18 19  California Real Estate Practice Instructor Materials Disclosure of Material Facts Don’t need to disclose No duty to disclose information if it doesn’t affect physical condition or title, including: ⚫ political or religious activity ⚫ crime or death on property ⚫ But must disclose death within last three years, if it affects property’s desirability. ⚫ If buyer asks about death or crimes, agent must answer honestly. © 2021 Rockwell Publishing 19 Summary Duties to Any Party Reasonable care and skill Good faith and fair dealing Disclosure of material facts Latent defects © 2021 Rockwell Publishing 20 Legal Effects of Agency For third party, dealing with agent may be legal equivalent of dealing with principal. Principal is bound by agent’s authorized signature or promise. © 2021 Rockwell Publishing 21 20  Chapter 1: Real Estate Agency Relationships Legal Effects of Agency Imputed knowledge Imputed knowledge rule: If third party tells agent something, principal is deemed to know it—even if agent never tells principal. © 2021 Rockwell Publishing 22 Legal Effects of Agency Vicarious liability Vicarious liability: Both agent and principal may be liable if the agent harms a third party. Applies whether or not principal: ⚫ authorized or approved agent’s actions ⚫ did anything wrong (if innocent principal is held liable to injured party, she can sue agent for reimbursement) © 2021 Rockwell Publishing 23 Summary Other Legal Effects of Agency Imputed knowledge Vicarious liability © 2021 Rockwell Publishing 24 21  California Real Estate Practice Instructor Materials Creating Agency Relationships Agency relationship may be created by: ⚫ express agreement ⚫ ratification ⚫ estoppel ⚫ implication © 2021 Rockwell Publishing 25 Creating Agency Relationships Express agreement Most agency relationships are created by written express agreement via a: ⚫ listing agreement ⚫ buyer agency agreement ⚫ property management agreement © 2021 Rockwell Publishing 26 Creating Agency Relationships Ratification Principal may ratify agency by: ⚫ approving agent’s unauthorized actions after the fact, or ⚫ accepting benefits of unauthorized actions. © 2021 Rockwell Publishing 27 22  Chapter 1: Real Estate Agency Relationships Creating Agency Relationships Estoppel Principal may be estopped from denying the existence of an agency if to do so would be unfair to a third party. © 2021 Rockwell Publishing 28 Creating Agency Relationships Implication Agency may be implied if agent acts in a way that causes third party to believe agent represents him. ⚫ If agent already has agency relationship with another party, this can result in undisclosed inadvertent dual agency. © 2021 Rockwell Publishing 29 Terminating Agency Relationships Termination by the parties: ⚫ mutual agreement ⚫ revocation ⚫ renunciation Terminated by operation of law: ⚫ expiration ⚫ fulfillment of purpose ⚫ death or incapacity ⚫ extinction of subject matter © 2021 Rockwell Publishing 30 23  California Real Estate Practice Instructor Materials Termination by the Parties Mutual agreement Principal and agent may simply agree to end agency. If agency was created with written document, it should be terminated in writing as well. © 2021 Rockwell Publishing 31 Termination by the Parties Revocation Principal may revoke agent’s authority at any time. Principal may be liable to agent for damages. © 2021 Rockwell Publishing 32 Termination by the Parties Renunciation Agent may renounce agency relationship at any time. Agent may be liable to principal for damages. © 2021 Rockwell Publishing 33 24  Chapter 1: Real Estate Agency Relationships Termination by Operation of Law Expiration Agency will end automatically when termination date arrives. If there’s no termination date, agency will terminate within a reasonable time. © 2021 Rockwell Publishing 34 Termination by Operation of Law Fulfillment of purpose Agency ends automatically when its purpose is fulfilled. © 2021 Rockwell Publishing 35 Termination by Operation of Law Death or incapacity Agency terminates if either party dies or becomes legally incapacitated. Termination occurs upon death (or declaration of incompetence) even if agent is unaware. © 2021 Rockwell Publishing 36 25  California Real Estate Practice Instructor Materials Termination by Operation of Law Extinction of subject matter Agency ends if subject matter of agency is destroyed or otherwise ceases to exist. © 2021 Rockwell Publishing 37 Summary Creation and Termination of Agency Ratification Fulfillment of Estoppel purpose Revocation Death or incapacity Renunciation Extinction of subject matter Expiration © 2021 Rockwell Publishing 38 Agency Disclosure Agency disclosure law California has an agency disclosure law. Agents must give both parties a general agency disclosure form. ⚫ Selling agent: before offer is signed ⚫ Listing agent: before listing is signed Disclosure form describes duties of buyer’s agent, seller’s agent, and dual agent. © 2021 Rockwell Publishing 39 26  Chapter 1: Real Estate Agency Relationships Agency Disclosure Agency confirmation statement Agent must also have each party sign agency confirmation statement; the statement says who the agent represents. Statement may be within purchase agreement form itself or a separate form. © 2021 Rockwell Publishing 40 Agency Disclosure Acting in accordance with disclosure Failing to act in accordance with disclosure can create inadvertent dual agency. DRE penalties for failing to act in accordance with agency disclosure: ⚫ license suspension or revocation ⚫ fine of up to $10,000 © 2021 Rockwell Publishing 41 Agency Disclosure Agent is buyer or seller If agent is buyer or seller in a transaction, agent must disclose that he is: ⚫ a licensed real estate agent in California ⚫ buying or selling property for his own benefit © 2021 Rockwell Publishing 42 27  California Real Estate Practice Instructor Materials Summary Agency Disclosure Inadvertent dual agency Agency disclosure law Agency confirmation statement © 2021 Rockwell Publishing 43 Seller Agency Duties owed to seller Listing agent represents seller and owes seller fiduciary duties. © 2021 Rockwell Publishing 44 Seller Agency Duty owed to buyer Seller’s agent owes buyer duty of good faith and fair dealing. Must: ⚫ answer questions honestly ⚫ make no misrepresentations But can’t: ⚫ give buyer advice on how much to offer ⚫ put buyer’s interests above seller’s interests ⚫ disclose seller’s confidential information © 2021 Rockwell Publishing 45 28  Chapter 1: Real Estate Agency Relationships Seller Agency Services to buyer Seller’s agent may: ⚫ discuss buyer’s housing needs ⚫ disclose information and answer questions about property ⚫ discuss financing alternatives ⚫ furnish copies of documents ⚫ explain negotiating and closing ⚫ refer the buyer to other professionals © 2021 Rockwell Publishing 46 Seller Agency Previous relationship with buyer If seller’s agent has previous relationship with buyer, conflicts of interest can arise. Agent should: ⚫ remind buyer of her agency status ⚫ warn buyer that his statements concerning this transaction must be disclosed to seller © 2021 Rockwell Publishing 47 Buyer Agency Buyer’s agents owe agency duties to buyer rather than seller. Benefits of buyer agency: ⚫ loyalty and confidentiality ⚫ objective advice ⚫ help with negotiation © 2021 Rockwell Publishing 48 29  California Real Estate Practice Instructor Materials Buyer Agency Written agreement Buyer agency is usually created through written agreement that: ⚫ authorizes broker to represent buyer ⚫ states that dual agency will be created if broker also represents seller ⚫ describes agent’s authority ⚫ limits scope of agent’s responsibilities ⚫ details promises buyer makes to agent © 2021 Rockwell Publishing 49 Buyer Agency Compensation Buyer’s agent is typically compensated with part of seller’s agent’s commission. Buyer’s agent and buyer may agree to buyer-paid fee instead, such as: ⚫ hourly fee ⚫ percentage fee ⚫ flat fee © 2021 Rockwell Publishing 50 Summary Seller and Buyer Agency Establishing seller agency Establishing buyer agency Advantages of buyer agency Compensation of buyer’s agent © 2021 Rockwell Publishing 51 30  Chapter 1: Real Estate Agency Relationships Dual Agency A dual agent represents both buyer and seller in same transaction: ⚫ owes agency duties to both parties ⚫ must refrain from acting to detriment of either party In-house transaction: Salesperson representing buyer and salesperson representing seller work for same broker. © 2021 Rockwell Publishing 52 Dual Agency Written consent required Dual agency requires written consent of both parties. Consent typically obtained through: ⚫ provisions in listing agreements and buyer’s agency agreements ⚫ separate dual agency disclosure forms © 2021 Rockwell Publishing 53 Finders Finder/middleman: Person involved in transaction without forming agency relationship with either party: ⚫ may be unlicensed ⚫ may be compensated through finder’s fee ⚫ does not owe fiduciary duties to either party © 2021 Rockwell Publishing 54 31  California Real Estate Practice Instructor Materials Summary Dual Agency Dual agent In-house transaction Written consent to dual agency Finder/middleman © 2021 Rockwell Publishing 55 32