*Agency –
Legal the description between a client and a broker (designated broker) usually created by a contract, where the client hires the broker to do certain things
A relationship in which one person (agent) is authorized to act under the control of another person (principal/broker/client) in a business transaction with a third party
*Broker duties:
1. Act on behalf of the client
2. Represent the client
3. Represent client to third parties (other Brokers or real estate companies)
*Three Types of Contracts that Public Uses With Broker:
1. Listing – Seller hires Broker
2. Buyer Broker – Buy hires Broker
3. Property Management Agreement – Owner hires Broker
*Rules for Creating Agency:
1. Employment contract must be in writing
2. Employment contract must be signed by both the principal and the agent.
Client/Broker Relationship:
1. Representation
2. To have best interests promoted and protected
3. Expects a fiduciary relationship with the Broker
4. Right to Broker’s advice and counsel (client is the one that Broker works for)
Customer/Broker Relationship:
1. Someone who transacts with a Broker,
2. Client represents their own best interests, promotes and protects themselves
3. Has no expectations of a fiduciary relationship with the Broker
4. No right to Broker’s advice or counsel
5. Has right to Broker’s honesty and accurate information
*Fiduciary –
A position of trust
Fiduciary Includes the Following Nine Points:
1. Trust
2. Loyalty
Pledges to give absolute fidelity to his principal
Must not obtain secret profit/advantage from relationship to his principal
Cannot purchase property of the principal without principal’s consent
Cannot act as agent for both parties of transaction, unless both consent in writing to dual agency
Not to disclose confidential information about the principal this would be a detriment to the principal
Cannot withhold offers to the client
3. Confidentiality
Reasonable care in performing the agency
Agent keeps lips zipped about anything that could hurt its client, unless the law requires its disclosure
4. Openness
A client has the right to know what his agent knows, sees, and hears, if it is important in negotiations
5. Faithful Service
Agent must do what he/she says he/she is going to do) (Example: #1 reason for listings to expire – no faithful service)
6. Obedience
Employee must do what the employer says to do, follow client’s wants
7. Accountability
Client has right to know what the agent is doing to get the job done
8. An Accounting
Agent must “account” to the client as to how the money was handled
Earnest money received by a salesperson must be given to the employing broker promptly
Brokers are obligated to deposit earnest money into a trust account, no commingling of funds
When a licensee buys a property for himself/herself, earnest money must go into a neutral depository, not a trust account
Records must be kept at the Broker’s office of all monies received
9. Honesty
Compensation of Agency:
Agents must be compensated by Designated Broker on the agreed upon commission amount
Arizona does not provide a specified commission amount
Agents have earned commission, if he/she has created an offer from a Buyer who is ready, willing and able to buy the property in accordance with the terms and conditions of the listing contract
*Two Ways of Creating Agency:
1. Express Authority –
Get the creation of agency in writing or verbal, Broker must have it in writing
Authority given to the agent in writing or by the conduct of the principal
2. Implied Authority –
Agency is created by the words or actions of a licensee, if the public believes you are working for them because of what you say or do, you are working for them, whether you know it or not, it does not matter
Authority to perform any act reasonably necessary to execute the express authority given to the agent
(Example: Designated Broker has implied authority to delegate his authority to his salespersons to act as subagents for the broker)
This creates an Accidental Agency – an agency that is created by mistake
Dual Agency -
When you put two clients together in the same real estate transaction
Undisclosed Dual Agency –
When a dual agency (When you put two clients together in the same real estate transaction) is occurring without written consent of the parties
*Categories of Agency:
General Agent –
An agent with many duties to perform for his principal (employer or Designated Broker) and as each job is completed the expectation is to continue employment
One who is employed to provide an ongoing service on behalf of his principal (Designated Broker)
(Example: Property managers, sales person, associated broker are general agents)
Special Agent –
An agent (Designated Broker) that has one duty to perform for the client and when the job is completed there is no expectation of continued employment from that client
One who has a limited authority to conduct a single transaction for a principal (client)
(Example: Real estate Brokers are special agents)
Three Types of Agency:
1. Single Agency –
Broker has only one client in a real estate transaction (either the Seller’s agent or the Buyer’s agent) never both sides
2. Dual Agency –
Broker has two clients in the same transaction both as the Seller’s agent and the Buyer’s agent
14 states have outlawed Dual Agency, however not Arizona
Arizona allows for Dual Agency, as long as the two parties have signed written notification of the Dual Agency.
This notification also informs the sides that the agent now has only limited fiduciaries. Out of the nine fiduciaries only three: confidentiality, “account of” (agent must “account” to the client as to how the money was handled), and honesty are to be given both parties.
3. Sub Agency –
Salesperson’s relationship with all of his Broker’s clients
Ten Reasons to Terminate an Agreement:
1. Mutual Consent
2. Destruction of Property
3. Action or Change of Law (Example: condemnation – government takes over property)
4. Death of the Broker or Client
5. Bankruptcy of Broker or Client
6. Insanity of Broker or Client
7. Revocation (Client fires Broker for lack of faithful service, however an agent who has an interest in the property cannot be unilaterally terminated before the expiration of the listing contract
8. Renunciation (Broker quits)
9. If agreement/contract expires – according to the terms
10. Conclusion of the agreement (job is done) – according to the terms
*Misrepresentation –
#1 cause for losing a license or being sued
False statement of material fact made to someone entitled to the information to which they respond with action and are damaged (financially)
Misrepresentation does not require intent to misrepresent a fact. A salesperson is liable, if he/she knows or should have known the falsity of the statement
Statements of opinion are not actionable by law. Statements of opinion are called “puffing”.
Freud –
Intent to misrepresent (False statement of material fact made to someone entitled to the information to which they respond with action and are damaged (financially)
Penalties for Misrepresentation:
1. Loss of license
2. Fine from the Department of Real Estate (for each broken rule)
3. Contract/Agreement fall through
4. Loss of commission
5. Law suit(s)
Possible Test Questions:
1. What is it called if the public believes you are working for them because of what you say or do, you are working for them, whether you know it or not, it does not matter?
It is called Implied Agency if you say or do something that causes another person to believe that you are working for them, whether you know you did it or not. It also creates an accidental agency (an agency that is created by mistake).
2. What can an implied agency create?
An implied agency (if you say or do something that causes another person to believe that you are working for them, whether you know you did it or not) can cause a dual agency. A dual agency is when you put two clients together in the same real estate transaction.
4. What is the #1 cause for losing a license?
The #1 cause for losing a license is misrepresentation. Misrepresentation is a false statement of material fact made to someone entitled to the information to which they respond with action and are damaged (financially)
5. What is fiduciary?
Fiduciary means a position of trust.
6. What are the two ways to create agency?
The two ways to create agency is expressed authority and implied authority. Expressed authority is the creation of agency in writing or verbal, authority given to the agent in writing or by the conduct of the principal. Implied Authority is created by the words or actions of a licensee, if the public believes you are working for them because of what you say or do, you are working for them, whether you know it or not, it does not matter, authority to perform any act reasonably necessary to execute the express authority given to the agent.
7. What is the difference between a client and a customer?
A client has
1. Representation
2. To have best interests promoted and protected
3. Expects a fiduciary relationship with the Broker
4. Right to Broker’s advice and counsel (client is the one that Broker works for)
A customer has
1. Someone who transacts with a Broker,
2. Client represents their own best interests, promotes and protects themselves
3. Has no expectations of a fiduciary relationship with the Broker
4. No right to Broker’s advice or counsel
5. has right to Broker’s honesty and accurate information