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Law of Agency
- Defines the rights and duties of the principal and the agent
- In real estate transactions, contract law and real estate licensing law-in addition to the law of agency-interpret the relationship between licensees and their clients.
- The relationship is between buyers and sellers or between landlords and tenants.
- A personal relationship between a brokerage and a client.
Agent (Broker) VS. Principal
- Agent: Authorized to act on behalf of another.
- Principal: the one who authorizes an agent to act on his behalf
Firm's broker is the agent and shares this responsibility with the licensees who work for the firm.
- The agent of an agent-an agent may delegate some authority or responsibility to another party, the subagent.
- Must be permitted by the original agency agreement
- The individual that hires the agent and delegates to that agent the responsibility of representing the principal's interests.
- The principal is the buyer or seller, or the landlord or the tenant
Fiduciary relationship between the princepal and the agent is authorized to represent the principal in a certain transaction
- The agent is placed in the position of special trust and confidence to the principal.
- The agent puts the principals interests about their own.
The principal to whom the agent fives advise and counsel
- Third party or non-represented consumer for whom some level of service is provided and who is entitled to fairness and honesty.
- No contract or no fiduciary responsibility
Non agent(facilitator, intermediary, transactional broker, transactional coordinator or contract broker)
- Middleman between a buyer and an seller or a landlord or a tenant, who assists one or both parties with the transaction without representing either party's interests.
- Subject to to specific statutory responsibilities
- Licensees may be know as non agents with a customer relationship
- Not main agent
Creation of Agency(Relationship)
- Relationship between the principal and the agent must be consensual.
- The principal delegates authority and the agent consents to act
- The parties must agree to form a relationship
- Express Agency-formal agreement between both parties
- Implied Agency--results from parties behavior
- Both parties formally express their intention to establish an agency ans state it's terms and condition
- May be either or or written
- Generally created by a written employment contract called a listing agreement--
- LISTING AGREEMENT-authorizes the broker to find a buyer or a tenant for the owner's property
- BUYER AGENCY Agreement-similar to a listing agreement, it stipulates the activities and responsibilities the buyer expects from the broker in finding the appropriate property for purchase or rent
- Implied agreement
- Occurs when the action of the parties indicate that they have mutually consented to an agency.
- Licensee acts on behalf on another part as that party's agent
- Can be created unintentionally, inadvertently or accidentally by their actions.
- EX. It is implied that a customer will pay for meal at a restaurant.
Agency Coupled with an Interest
- the agent is given an interest in the subject of the agency, such as the property being sold.
- Cannot be revoked by the principal or be terminated upon the principal's death
- Source of compensation does not determine agency.
- An agent does not necessarily represent the person who pays the agent's commission
- GRATUITOUS AGENCY-relationship when no fee is involved.
Client Versus Customer Service
Client is the principal to whom the agent gives advice and counsel. The agent is entrusted with certain confidential information and has fiduciary responsibilities to the principal.
- Customer is a third party who is entitled to factual information and fair and honest dealings, but does not receive advice and counsel or confidential information about the principal
- Agent works for the client(principal) and with the customer.
- Fiduciary Relationship of trust and confidence means that the real estate broker owes the principal certain duties
- Duties are the law, not just moral and ethical
Six Fiduciary Dutie
- Care--Expertise. Agent must exercise a reasonable degree of care while trancacting business entrusted to them by the principal. The agent should know all the facts pertinent to the principals affairs, such as the physical characteristics of the property being transferred and the type of financing being used, etc
- Obedience--Follow the directions of the principal so long as they are legal or ethical
- Accounting--Agent must be able to report the satus of all funds received from or on behalf of the principal. Brokers are required to deposit and account for escrow funds in the manner prescribed in PA's licensing law. Conversion is the illegal use of entrusted money. Brokers are required to five copies of all documents to all partied affected by them and keep records for themselves.
- Loyalty--Agent places principal's interest about their own.
- Disclosure-- Agent must disclose material facts that quantifiable and verifiable. The seller must disclose LATENT DEFECTS of which they are aware, i.e. hidden structural defect not discovered by the ordinary inspections and that threatens the property's soundness or safety if it's inhabitants. Buyer's agent must disclose deficiencies of a property as well as provisions in a sales contract and financing terms that may affect the buyer's decision to purchase. The buyer'd agent would suggest the lowest price that the buyer should pay based on comparable values, regardless of the listing price.
- Confidentiality--Never Ends! Agent may not disclose the principal's financial condition.
Termination of Agency (Relationship)
- Agency may be terminated for the following reasons:
- Completion, performance or fulfillment of the purpose for which the agency was created
- Death of incapacity of either party, includes broker, NOT licensee
- Destruction or condemnation of the property
- Expiration of the terms of the agency (broker)
- Mutual agreement by all parties to cancel the contract
- Breach by one of the parties
- By operation of law, as in bankruptcy of the principal or foreclosure
Types of Agency Relationships
Agents empowerment to represent the principal depends solely on the authorization to do so.
- A person who is empowered to do anything the principal could do personally.
- Authority to act on the principal's behalf is unlimited
- Licensee typically doesn't have this scope of authority in a real estate transaction.
- May represent a principal in a broad range of matters related to a particular business of activity.
- A property manager is typically a general agent for the owner.
- Real Estate sales people are general agents for their broker.
PA Real Estate Licensing and Registration Act (RELRA)
- Permits the broker to act as the following:
- The agent of a buyer or tenant
- The agent of a seller or landlord
- A dual agent of the seller/landlord and buyer/tenant in the same transaction or
- A transaction licencee, a non agent who provides only customer service for wither or both the buyer/tenant and buyer/landlord in the transaction
- The law does not require a broker to offer all of them.
The agent represents only one party in any single transaction. The broker can not represent both the buyer and the seller in the same transaction and remain a single agent.
Seller As Principal
- If a seller enters a listing agreement with a broker to market the seller's real estate , the broker becomes the seller's agent
- The broker is strictly accountable to the principal, in this case the seller
Buyer as Principal
- Buyer who contracts with a broker to locate property and represent the buyer's interests in a transaction is the principal, the broker's client
- Licensing law specifically states that the licencee must make a continuous and good faith effort to find a property for the buyer until the buyer is subject to an existing agreement of sale.
Landlord as Principal
- Owner employs a broker to market, lease, maintain or manage the owner's property.
- Property Management
Tenant as Principal
- Tenant may contract with a broker to located property suitable for the tenant's specific purposes.
- Broker becomes the agent of the tenant and the tenant is the principal.
- Landlord/property owner is the broker's customer, not client
- Common in commercial transactions
- created when one broker appoints other brokers as subagents to help perform client based functions on the principal's behalf.
- Subagent is a broker, not in the employ of the listing broker
- Not common
- Similar to a transitional licensee.
- The agent represents twp principals in the same transaction
- Requires equal loyalty to two different principals at the same time.
- Must be disclosed and all parties must consent to the agreement, via written consent
- Process that accommodates an in-house sale in which two different affiliated licensees are involved.
- The broker designates one licensee to the seller and one licensee to represent the buyer
- Broker is still the dual agent
- Disclosure is required
Undisclosed Dual Agency
- Dual agency usually happens unintentionally or inadvertently.
- Can create an implied agency with the buyer and violate the duties of loyalty and confidentiality to the principal-seller
Transaction Licensee (Nonagency)
- Also called a transnational broker, facilitator, coordinator or contract broker
- Not an agent of either broker
- Helps both the buyer and seller with paperwork and formalities involved in transferring ownership of real property
- May not negotiate
- May not disclose confidential information
- Still must disclose know defects in the property
Disclosure of Agency
Licensees are required to disclose the parties they represent
- Must be discussed before entering into a contract, before providing services, before learning confidential information.
- Disclosure summary required for the purchase or sale of residential or commercial real estate or for the lease of residential or commercial real estate when the licensee is working on behalf of the tenant only.
- A different disclosure is required for the lease of residential or commercial real estate when the licensee is working on behalf of the owner.
- Not required in all transactions, but is good business
- Licensee is required to make the disclosure to the customer during an email or phone conversation
- Broker must also establish procedures for disclosing--the specific types of services the firm provides, the party the licensee represents in a a specific transaction, the company policies regarding dual agency and designated agency and company policies regarding cooperation with other brokers.
- The customer, the person who is not yet the client should expect the following as well:
- Reasonable care and expertise and skill in performance
- Honest and fail dealing
- Disclosure of all facts that the licensee knows or should reasonably expected to know the that materially affect the value or desirability of the property.
- Buyer Beware!
- The buyer is responsible for discovery
- Sellers are requited to report a Seller Property Disclosure Statement in which that are obligated to note any deficiencies in the property.