© OnCourse Learning Chapter 21 : The Principal-Broker Relationship: Agency

 Created when one person delegates to another the right to act on his behalf.  General agency – the right to bind the principal to perform a particular act.  Principal = Property owner  Agent = Broker  Client = Principal AGENCY © OnCourse Learning

 Written – contractual agreement  Implied – custom in the industry  Ostensible – conduct of the parties  Ratification – agency established after the fact  Estoppel – due to principles failure to maintain due diligence over the agent who exercises powers not granted him. ESTABLISHING AUTHORITY © OnCourse Learning

Commission Skills and Knowledge Principal Agent AGENCY RELATIONSHIP © OnCourse Learning

C are O bedience A ccounting L oyalty (Competence and expertise) (Lawful instructions) (For funds received) (Principal’s interest first) BROKER’S OBLIGATION TO PRINCIPAL © OnCourse Learning

COMMINGLING When broker places money belonging to a client or customer in a personal account.

Said without checking the facts Not said and facts not checked Said wrongly to mislead Unsaid in order to mislead A Facts Broker Knows B Facts Broker Does not know DISCLOSURE LIABILITY © OnCourse Learning

 “As Is”  Puffing  Lead-based paint disclosure on homes built prior to 1978  Home Inspections RED FLAGS © OnCourse Learning

 The exact opposite theory from the traditional seller representation.  Here the principal or client is the buyer!  Agent owes the care of agency duties to buyer. BUYER AGENCY © OnCourse Learning

 Agency relationships can be created without written agreements and consumers must be informed who the agent represents so there is a clear understanding of the agent’s role in a transaction.  Many states now require disclosure forms. AGENCY DISCLOSURE © OnCourse Learning

 Seller disclosure statements are a detailed disclosure of property defects (or lack thereof) on a form often produced by a real estate trade association. © OnCourse Learning SELLER DISCLOSURE STATEMENT

 Owner disclosure information  Interstate land disclosure statements  Antitrust laws  Price fixing  Boycotting  Errors and Omission insurance INFORMATION © OnCourse Learning

Key Terms Agent Boycotting Commingling Dual agency Middleman Ostensible authority Price fixing Principal Puffing Third parties © OnCourse Learning