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The Agency: Agency Relationship in Real Estate

The agency relationship is established when a major (client) hires a agent (next to the broker) to find a willing, able and ready client (buyer, seller, tenant, owner). This relationship is regulated by the fiduciary duties of trust, confidentiality and good faith.

Principal (client) hires agent (broker) to find ready, willing, and able customer (buyer, seller, tenant, landlord)

Types of Agency

Universal: The agent represents in all matters and may enter into contracts on behalf of the principal.

  • represent in all matters
  • can contract for principal

General: The agent represents in commercial matters and may also enter into contracts on behalf of the principal.

  • represent in business matters
  • agent can contract for principal

Special: The agent represents in a single business transaction and generally cannot enter into contracts on behalf of the principal. This characterizes the intermediation relationship.

  • represent in single business transaction
  • normally agent cannot contract for principal
  • characterizes the brokerage relationship

Creation of the Agency

The agency can be established in two ways:

Express Written or Oral Agreement (listing): It is set for a specific transaction and contains an explicit expiration date.

  • Express written orally agreement (listing)
    – established for a specified transaction
    – contains an express expiration

Implied Agreement Through Actions of Either Party: It may be intentional or unintentional and may bind the agent to fiduciary duties and professional standards of care. Not allowed in some states.

  • Implied agreement by actions of either party
    – can be intentional or unintentional
    – can obligate the agent to fiduciary duties and professional standards of care
    – not allowed to exist in some states

Agency Termination

The agency may terminate voluntarily, involuntarily, or by mutual agreement.

Volunteer: When the terms of the agreement are met or expire, or when both parties mutually agree to terminate it.

  • Volunteer
    – fulfillment
    – expiration
    – mutual agreement

Involuntary: When circumstances occur such as incapacity, abandonment or destruction of property, resignation, default, bankruptcy or revocation of license.

  • Involuntary
    – incapacity
    – abandonment or destruction of property
    – renunciation
    – breach
    – bankruptcy
    – revocation of license

Duties and Obligations

Fiduciary Duties of Agent to Client:

  • Skill, care and diligence: Act proactively, competently and within the limits of your experience.
  • Loyalty: Place the interests of the client above those of the client and the agent themselves.
  • obedience: Carry out legal actions and instructions provided by the client.
  • Confidentiality: Maintain confidentiality even after the contract ends.
  • Full disclosure: Report on the condition of the property, clients and material facts.
  • Accounting: Properly manage money and documents.

Obligations Towards Clients – Obligations Owed Customers:

  • Honesty and fair treatment – honesty and fair dealing
  • Reasonable care and skill – reasonable care and skill
  • Adequate disclosure – proper disclosure

Breach of duty: Potential Consequences

Failure to comply with duties may lead to loss of listing, compensation, license suspension or claim for damages

  • loss of listing; compensation; license suspension, suit for damages

Legal Representation and Fraud

 

Puffing (Exaggeration):

When a licensee exaggerates the benefits of a property – licensee boasting about property's benefits

Fraud:

It involves a false statement or failure to disclose a material fact, knowledge that the statement was false or that the fact should have been disclosed, reliance on the statement by the other party, and damages caused by the false statement. – misstatement or failure to disclose material fact – knowledge that statement was false or fact should have been disclosed – party relied on misstatement – party was damaged by misstatement

Misrepresentation: 

Misstatement or concealment of fact

Intentional misrepresentationpurposeful misstatement of material fact.

The false statement or intentional concealment of a material fact.

– Intentional omission: purposeful concealment of material fact.

The intentional concealment of a fact that the agent should have known.

– Negligent misrepresentation: unintended misstatement that agent should have known.

An unintentional statement that the agent should have known.

– Negligent omission: unintended concealment that agent should have known.

The agent does not reveal information that he should have revealed.

Types of Agency: Single / Dual / Sub / No Agency

Single Agency: Representation of the seller or buyer, tenant or landlord.

Subagency: Third party agents assisting the listing agent or internal agents of the broker.

  • outside brokers and agents who help listing agent
  • listing broker's own agents
  • (disallowed in some states)

Dual Agency: Representation of both parties. This may potentially be illegal or present conflicts of interest and must be disclosed and written consent obtained.

  • representing both sides
  • potentially illegal or conflict of interest
  • must disclose & obtain written consent
  • Types of dual agency
    – voluntary by consent
    – involuntary by actions of parties (implied agency)
    – duties: all but full disclosure and loyalty
  • ​​​​Dual agency duties
    – disclose to both parties; obtain written consent
    – owes duties of skill, care, diligence, obedience, confidentiality, accounting
    – does not owe duties of full disclosure and loyalty; exclusive representation of client's interest

No agency:

  • “facilitator” or “transaction broker”
  • representing neither party in the transaction
  • duties to both parties: accounting; skill, care and diligence; honesty and fair dealing; disclosures affecting property value

Disclosure Rules

Agency Disclosure rules vary by state, and goals include declaring, explaining, offering options, and obtaining documented consent.

Disclosure objectives

  • declare
  • explain
  • offer choice
  • obtain documented consent

Seller agent disclosures at client:

  • Written.
  • Before or at the time of execution of the contract.

Seller agent disclosures to customer:

  • Written.
  • At first face-to-face contact or first substantive communication, depending on state law.
  • Oral disclosure is permitted, but written follow-up is required.

Buyer agent disclosures to seller:

  • Written.
  • Upon first contact with the listing agent or seller.
  • Substantive contact is assumed.

Dual agent disclosures:

  • “Written informed consent.”
  • Price or financing positions or motivations may not be disclosed without authorization.

Facilitator disclosures (Transaction Broker):

  • By becoming an intermediary or the first substantive contact, whichever comes first.

(Note: Agency disclosure rules vary by state; check your state's section for specific laws.)

Legal and Tax Disclaimer

Please be advised that the content presented in this blog is for informational purposes only and should not be construed as legal or tax advice. The articles and information provided here are written from the perspective of a real estate agent affiliated with Keller Williams, and do not represent legal or tax counsel.

As the author, I am a licensed real estate professional under Keller Williams, holding Brokerage DRE License Number: #02197031. However, it is important to note that my expertise is in the field of real estate, and not in legal or tax matters. The insights and opinions shared on this blog are based on my experiences and knowledge in the real estate industry and should be treated as general guidance rather than definitive legal or tax advice.

For specific legal or tax concerns relating to any real estate transactions or investments, readers are strongly encouraged to consult with a qualified attorney or tax advisor who can provide tailored advice based on your individual circumstances and the latest legal and regulatory requirements.

The information on this blog is provided "as is" without warranty of any kind, and I, along with Keller Williams and its affiliates, disclaim all liability for any loss, damage, or misunderstanding arising from reliance on the information contained herein.

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