Lesson 8: Real Estate Agency Law

Lesson 8: Real Estate Agency Law
Principles of California Real Estate Lesson 8: Real Estate Agency Law

Definitions Agency relationship: Established when one person authorizes another to represent her in dealings with other people (third parties).

Definitions Agency relationship: Established when one person authorizes another to represent her in dealings with other people (third parties). Person authorizing another to represent her: principal. Person authorized to act as principal’s representative: agent.

Agency Relationship Seller or buyer hires a broker to act as representative (agent) in a real estate transaction.

Agency Relationship Seller or buyer hires a broker to act as representative (agent) in a real estate transaction. Many real estate transactions involve more than one agency relationship: each party may have own agent typical transaction also involves real estate salespersons working for brokers

Agency Law Agency relationship has important legal consequences for both parties:

Agency Law Agency relationship has important legal consequences for both parties: Dealing with agent may be legal equivalent of dealing with principal directly.

Agency Law Agency relationship has important legal consequences for both parties: Dealing with agent may be legal equivalent of dealing with principal directly. Agent owes certain legal duties to his principal.

General Agency Law Governs agency relationships and establishes agent’s powers and duties. Applies to agency relationships between: lawyer and client trustee and beneficiary real estate agent and seller or buyer

Creating an Agency Duties and liabilities of agency relationship arise automatically when relationship is created.

Creating an Agency Duties and liabilities of agency relationship arise automatically when relationship is created. Under general agency law, agency relationships created by: express agreement ratification estoppel implication

Creating an Agency Express agreement
Principal appoints someone to act as his agent, and agent accepts appointment. Most agencies created by express agreement.

Principal appoints someone to act as his agent, and agent accepts appointment. Most agencies created by express agreement. Examples: listing agreement buyer agency agreement power of attorney

Express agency agreement must meet some—but not all—requirements for valid contract: mutual consent competent parties lawful purpose

Express agency agreement must meet some—but not all—requirements for valid contract: mutual consent competent parties lawful purpose Consideration NOT required. Agency relationship can exist even if principal isn’t compensating agent.

Valid agency can be created with oral agreement (but written agreement always best). Agency relationship begins as soon as parties agree to it.

Valid agency can be created with oral agreement (but written agreement always best). Agency relationship begins as soon as parties agree to it. Without written agreement, broker can’t sue client for compensation.

Creating an Agency Ratification
Principal gives approval—after the fact—to acts not authorized at time they were performed.

Creating an Agency Ratification
Principal gives approval—after the fact—to acts not authorized at time they were performed. Principal may ratify agency by: expressly approving unauthorized acts or accepting benefits of unauthorized acts

Creating an Agency Estoppel
Agency is created by estoppel when: apparent agent acts on behalf of principal without authorization principal allows third party to believe actions were authorized

Creating an Agency Estoppel
Agency is created by estoppel when: apparent agent acts on behalf of principal without authorization principal allows third party to believe actions were authorized The principal is estopped (prohibited) from denying agency in order to protect innocent third party.

Creating an Agency Implication
One person’s behavior implies that he’s acting as another person’s agent.

One person’s behavior implies that he’s acting as another person’s agent. If a person believes that someone is acting as her agent, and that someone fails to correct that impression, he may be held to owe agency duties to the first person.

Agency by implication is similar to agency by estoppel, except: in agency by estoppel, principal must acknowledge agency for protection of third party

Agency by implication is similar to agency by estoppel, except: in agency by estoppel, principal must acknowledge agency for protection of third party in agency by implication, agent must acknowledge agency for protection of principal

Summary Creating an Agency Relationship
Express agreement Power of attorney Ratification Estoppel Implication

Legal Effects of Agency
Dealing with agent can be the legal equivalent of dealing with principal: agent’s actions may be binding on principal principal may be held liable for agent’s mistakes/misconduct principal may be held to know information known by agent

Legal Effects of Agency Agent’s actions bind principal
General rule: authorized acts performed by agent are legally binding on principal, as if principal had performed acts himself.

Legal Effects of Agency Agent’s actions bind principal
General rule: authorized acts performed by agent are legally binding on principal, as if principal had performed acts himself. Principal typically bound only by agent’s acts that are within the scope of authority granted by principal.

Agent’s Authority General agent
General agent: Agent who is authorized to act in one or more specified areas of principal’s affairs. Within those areas, general agent has broad authority. Often handles all matters for particular business/property owned by principal (example: property managers).

Agent’s Authority Special agent
Special agent: Agent is authorized to do only a specific thing or conduct a specific transaction. Broker typically authorized to represent seller/buyer only in single transaction. Broker’s authority usually quite limited in that single transaction.

Agent’s Authority Actual vs. apparent authority
Two types of agency authority: actual apparent

Actual vs. Apparent Authority Actual authority
Actual authority: Written or oral authority granted to agent by principal.

Actual authority: Written or oral authority granted to agent by principal. Express actual authority: when principal specifically directs agent to do something.

Actual authority: Written or oral authority granted to agent by principal. Express actual authority: when principal specifically directs agent to do something. Implied actual authority: agent’s additional authority to do whatever necessary to carry out acts expressly authorized by principal.

Principal is bound by agent’s actions if within scope of agent’s actual authority. Principal may also be bound by actions within scope of agent’s apparent authority.

Actual vs. Apparent Authority Apparent authority
Apparent authority: Authority agent appears to have, although principal didn’t actually grant it.

Apparent authority: Authority agent appears to have, although principal didn’t actually grant it. Principal not bound by unauthorized actions unless she’s aware of them and her conduct indicates approval.

If principal fails to deny that apparent agent’s actions are authorized, and third party relies on agent’s apparent authority, principal may be bound by agent’s actions. Third party should always try to verify agent’s authority and determine scope.

Summary Agent’s Actions Bind Principal
Authorized actions are binding Scope of authority Actual authority Apparent authority Ostensible agent

Legal Effects of Agency Vicarious liability
Tort: mistake, accident, or misconduct resulting in injury/financial harm to another. Party committing tort may be held liable and required to compensate injured party.

Tort: mistake, accident, or misconduct resulting in injury/financial harm to another. Party committing tort may be held liable and required to compensate injured party. If agent commits tort, principal may be held liable under theory of vicarious liability.

Vicarious liability: principal liable for agent’s torts as if he had committed them himself.

Vicarious liability: principal liable for agent’s torts as if he had committed them himself. Person injured by agent may sue principal as well as agent.

Vicarious liability: principal liable for agent’s torts as if he had committed them himself. Person injured by agent may sue principal as well as agent. Principal and agent jointly responsible for paying any judgment awarded to plaintiff.

Injured party’s chances of collecting judgment increase when two defendants are responsible for paying judgment. Even if one defendant doesn’t pay, the other may.

If innocent principal is vicariously liable for agent’s actions, he can sue agent.

If innocent principal is vicariously liable for agent’s actions, he can sue agent. Agent must reimburse principal for any money paid to third party. Principal must be able to enforce judgment against agent.

A principal can be vicariously liable both for acts of his broker and for acts of salesperson working for his broker.

A principal can be vicariously liable both for acts of his broker and for acts of salesperson working for his broker. A broker can be vicariously liable for negligent or wrongful acts of her salesperson.

Legal Effects of Agency Imputed knowledge rule
Under general agency law, principal is held to have notice of information in agent’s possession. Agent’s knowledge is imputed to principal. True even if agent never actually tells principal.

If agent knows something that third party should be told, principal held to know that information as well.

If agent knows something that third party should be told, principal held to know that information as well. Principal may be held responsible for failing to disclose that information to third party, even if agent never actually told principal.

Summary Vicarious Liability and Imputed Knowledge
Tort Vicarious liability Imputed knowledge

Agency Duties Agency law imposes legal duties (standards of conduct) on agent. Two broad categories: duties agent owes to principal duties agent owes to third parties

Duties to the Principal
Agency is fiduciary relationship: agent is fiduciary in relation to principal.

Agency is fiduciary relationship: agent is fiduciary in relation to principal. Fiduciary: someone who acts for benefit of another in relationship founded on trust and confidence.

Agent owes fiduciary duties to principal : reasonable care and skill obedience and utmost good faith accounting loyalty disclosure of material facts

Agent owes fiduciary duties to principal : reasonable care and skill obedience and utmost good faith accounting loyalty disclosure of material facts Duties are owed to principal from time agency relationship begins through closing.

Duties to the Principal Reasonable care and skill
When representing principal, agent must use same degree of care and skill ordinarily used by others competently engaged in same business.

When representing principal, agent must use same degree of care and skill ordinarily used by others competently engaged in same business. Agent liable to principal for any harm caused by carelessness or incompetence.

When representing principal, agent must use same degree of care and skill ordinarily used by others competently engaged in same business. Agent liable to principal for any harm caused by carelessness or incompetence. Agent is compared to competent real estate agents, not average citizen.

Duties to the Principal Obedience and good faith
Agent must obey principal’s instructions in good faith. If principal suffers loss because agent didn’t follow instructions, agent can be held liable.

Duties to the Principal Accounting
Agent must avoid commingling, or mixing any trust funds with his or her own funds.

Agent must avoid commingling, or mixing any trust funds with his or her own funds. Agent must regularly report to principal on status of trust funds.

Agent must avoid commingling, or mixing any trust funds with his or her own funds. Agent must regularly report to principal on status of trust funds. In California, a real estate broker must deposit all trust funds in special trust account to prevent commingling or improper use of the funds.

Duties to the Principal Loyalty
Agent must put principal’s interests above those of third party, and above agent’s own interests.

Duties to the Principal Loyalty
Agent must put principal’s interests above those of third party, and above agent’s own interests. Agent may not take any action detrimental to principal’s interests in transaction.

Loyalty Confidentiality
If principal tells agent something in confidence, agent must not disclose it to third parties or use it for his own benefit. Part of duty of loyalty

Agent doesn’t owe any duty of confidentiality to third parties: If buyer tells seller’s agent something useful to seller, agent must tell seller.

Agent doesn’t owe any duty of confidentiality to third parties: If buyer tells seller’s agent something useful to seller, agent must tell seller. If seller tells buyer’s agent something useful to buyer, agent must tell buyer.

Loyalty Secret profits
Agent can’t have an interest in the transaction without principal’s consent. Agent can’t collect any secret profit: a financial benefit agent receives without principal’s consent.

Loyalty Secret profits
Agent can’t have an interest in the transaction without principal’s consent. Agent can’t collect any secret profit: a financial benefit agent receives without principal’s consent. Buyer acting on own behalf need not disclose intent to make profit off deal.

Duties to the Principal Disclosure of material facts
Agent must disclose any facts that could influence principal’s judgment in transaction.

Agent must disclose any facts that could influence principal’s judgment in transaction. All these must be disclosed: offers to purchase property’s true value any relationship between agent and buyer dual agency

Seller’s agent must present all offers to purchase: even if offer seems unacceptable

Seller’s agent must present all offers to purchase: even if offer seems unacceptable even if not accompanied by good faith deposit

Seller’s agent must present all offers to purchase: even if offer seems unacceptable even if not accompanied by good faith deposit unless clearly frivolous, or when seller instructs agent not to present certain types of offers

Failure to disclose property’s true value is breach of seller’s agent’s fiduciary duty.

Failure to disclose property’s true value is breach of seller’s agent’s fiduciary duty. Seller often relies on agent’s advice in setting listing price. By misleading seller, unscrupulous agent could arrange bargain for friend, or collect secret profit.

Seller’s agent must disclose any relationship with prospective buyer. Potential for conflict of interest.

Seller’s agent must disclose any relationship with prospective buyer. Potential for conflict of interest. Seller’s agent must also disclose if he’s buying interest in the property himself.

Seller’s agent must disclose dual agency. Broker may act as dual agent only if both principals consent to arrangement.

Seller’s agent must disclose dual agency. Broker may act as dual agent only if both principals consent to arrangement. Broker must always exercise caution when acting as a dual agent, because it’s difficult to represent two parties who have conflicting interests.

Summary Duties to the Principal
Reasonable skill and care Obedience and good faith Accounting Loyalty Disclosure of material facts

Duties to Third Parties
Agent also owes duties to third parties: reasonable care and skill good faith and fair dealing disclosure of material facts

Duties to Third Parties Reasonable care and skill
Agent owes duty of reasonable care and skill to third parties as well as to principal.

Duties to Third Parties Good faith and fair dealing
Both principal and agent owe third parties duty of good faith and fair dealing. Seller and seller’s agent must treat prospective buyers fairly.

Duties to Third Parties Avoiding misrepresentation
Duty of good faith and fair dealing requires agent to avoid making inaccurate or misleading statements.

Duties to Third Parties Avoiding misrepresentation
Duty of good faith and fair dealing requires agent to avoid making inaccurate or misleading statements. Unintentional as well as intentional misrepresentations may amount to fraud, giving third party the right to rescind purchase agreement or sue for damages.

Avoiding Misrepresentation Opinions, predictions, and puffing
But a party generally can’t sue agent based on agent’s opinions, predictions, or puffing. Puffing: nonfactual or exaggerated statements, which a party should recognize as unreliable.

Avoiding Misrepresentation Opinions, predictions, and puffing
Recently, CA courts more willing to treat puffing as representations of material facts, because unsophisticated buyers might rely on statements and buy property. Be aware that sales talk might be interpreted as statement of fact—leading to charge of misrepresentation.

Good Faith and Fair Dealing Disclosure of material facts
The duty of good faith and fair dealing requires agent to disclose material facts about the property to prospective buyers.

Disclosure of Material Facts Latent defects
Material facts include latent defects. Latent defect: problem with property not discoverable through casual inspection.

Material facts include latent defects. Latent defect: Problem with property not discoverable through casual inspection. If agent (or seller) knows of any latent defects, she must disclose them to prospective buyers, even if buyer doesn’t ask.

If seller asks agent to conceal a latent defect, agent must refuse. Agency duties don’t require or allow agent to violate law on principal’s behalf.

Property may be advertised “as is” (the seller is not claiming the property is in good condition). This doesn’t relieve seller or seller’s agent of duty to disclose latent defects.

Disclosure of Material Facts Exceptions to duty to disclose
Under CA law, agent/seller are not required to disclose: house was once occupied by person with AIDS (in fact, this must NOT be disclosed)

Under CA law, agent/seller are not required to disclose: house was once occupied by person with AIDS (in fact, this must NOT be disclosed) death on premises more than three years earlier (regardless of cause)

Under CA law, agent/seller are not required to disclose: house was once occupied by person with AIDS (in fact, this must NOT be disclosed) death on premises more than three years earlier (regardless of cause) If specifically asked about deaths on property, agent must answer truthfully.

Disclosure of Material Facts Property inspection
In residential transactions, agent must inspect property and disclose any problems discovered—she cannot simply rely on seller’s information about property.

In residential transactions, agent must inspect property and disclose any problems discovered—she cannot simply rely on seller’s information about property. Duty to inspect applies to any agent listing a one- to four-unit residential property (except new home in subdivision offered for sale for first time).

Agent is not required to inspect areas that are not reasonably accessible to visual inspection. If property is condominium unit, agent needs to inspect only the unit for sale.

Disclosure of Material Facts Transfer disclosure statement
Buyer in transaction involving 1- to 4-unit residential property must be given a Real Estate Transfer Disclosure Statement.

Buyer in transaction involving 1- to 4-unit residential property must be given a Real Estate Transfer Disclosure Statement. Transfer disclosure statement has separate sections to be filled out by seller, listing agent, and selling agent.

Buyer in transaction involving 1- to 4-unit residential property must be given a Real Estate Transfer Disclosure Statement. Transfer disclosure statement has separate sections to be filled out by seller, listing agent, and selling agent. Agent should fill out only his own section of the form—not the seller’s sections.

Selling agent is responsible for giving completed disclosure statement to buyer.

Selling agent is responsible for giving completed disclosure statement to buyer. Transactions exempt from transfer disclosure statement requirement are those resulting from foreclosure, probate, divorce, or other court orders

Disclosure of Material Facts Lead-based paint
Lead-based paint disclosure law: federal law requires sellers and landlords to disclose any lead-based paint hazards to prospective buyers or tenants.

Lead-based paint disclosure law: federal law requires sellers and landlords to disclose any lead-based paint hazards to prospective buyers or tenants. Applies to transactions involving housing built before 1978.

Lead-based paint disclosure law: federal law requires sellers and landlords to disclose any lead-based paint hazards to prospective buyers or tenants. Applies to transactions involving housing built before 1978. Intended to reduce incidence of lead poisoning, which causes severe brain and organ damage in young children.

Seller/landlord must: disclose location of any lead-based paint

Seller/landlord must: disclose location of any lead-based paint provide copy of any existing lead-based paint inspection report

Seller/landlord must: disclose location of any lead-based paint provide copy of any existing lead-based paint inspection report give buyers/tenants EPA pamphlet on lead-based paint

Buyers (not tenants) get a 10-day period to have home tested for lead-based paint.

Buyers (not tenants) get a 10-day period to have home tested for lead-based paint. Specific warnings must be attached to purchase agreement/lease.

Buyers (not tenants) get a 10-day period to have home tested for lead-based paint. Specific warnings must be attached to purchase agreement/lease. Parties must sign statements acknowledging law’s requirements have been fulfilled.

Breach of Duty If agent breaches duties to principal and/or third parties, what are the consequences? Tort liability Disciplinary action

Breach of Duty Tort liability
Breach of duty may result in tort lawsuit against agent (injured party can sue agent). Injured party might be either agent’s principal or third party.

Breach of Duty Tort liability
Remedies for injured party: compensatory damages rescission refund of agent’s commission or any secret profits made

Tort Liability Vicarious liability
If salesperson commits tort against buyer, buyer can sue salesperson—and also salesperson’s broker and broker’s principal (seller).

Tort Liability Vicarious liability
If salesperson commits tort against buyer, buyer can sue salesperson—and also salesperson’s broker and broker’s principal (seller). Defendants may all be held liable for any damages awarded. If seller did nothing wrong but had to pay damages, seller can sue broker for amount paid.

Breach of Duty License suspension or revocation
Agent’s breach of duty usually is also a violation of the Real Estate Law, resulting in license suspension, revocation, or other disciplinary measures.

Summary Duties to Third Parties
Good faith and fair dealing Latent defects Property inspection Transfer disclosure statement Breach of duty

Terminating an Agency Termination of agency: agent no longer authorized to represent principal. Most agency duties and liabilities end.

Terminating an Agency Termination of agency: agent no longer authorized to represent principal. Most agency duties and liabilities end. Agency terminated in two ways: by actions of parties by operation of law

Terminating an Agency Action of the parties
Agency based on mutual consent, so relationship can be terminated by: mutual agreement revocation by the principal renunciation by the agent

Termination by the Parties Mutual agreement
Principal and agent can terminate agency by mutual agreement at any time.

Principal and agent can terminate agency by mutual agreement at any time. Get termination in writing, especially if agency based on written contract.

Principal and agent can terminate agency by mutual agreement at any time. Get termination in writing, especially if agency based on written contract. Notify any third parties agent’s been dealing with.

Termination by the Parties Principal revokes
Principal can fire agent for any reason—or no reason at all. However, revocation before agreed termination date might breach the contract—in that case, agent could sue principal for damages.

Termination by the Parties Principal revokes
Exception to revocation rule: agency coupled with interest can’t be revoked. Agency coupled with interest: agent has financial stake or other interest in agency subject matter.

Termination by the Parties Agent renounces
Agent may terminate agency at any time without principal’s consent. However, renunciation before agreed termination date might breach the contract—in that case, principal could sue agent for damages.

Termination by the Parties Termination by operation of law
Agency will terminate automatically if: agency term expires agency’s purpose is fulfilled either party dies/becomes incompetent property that was subject matter of agency is extinguished

Termination by Operation of Law
Agent’s authority ends automatically on termination date of agency agreement.

Termination by Operation of Law
Agent’s authority ends automatically on termination date of agency agreement. If no termination date specified in contract, agency will expire after reasonable time. “Reasonable time” may have to be determined by a court.

Termination by Operation of Law Purpose fulfilled
Agency terminates when its purpose has been fulfilled.

Termination by Operation of Law Purpose fulfilled
Agency terminates when its purpose has been fulfilled. Example: Seller hires broker to find buyer for his property. When buyer is found and transaction closes, purpose of agency has been met and agency ends.

Termination by Operation of Law Death or incompetence
Agency terminated automatically if either party dies or becomes legally incompetent. Even before agent is informed of terminating event, agent’s actions are no longer authorized.

Termination by Operation of Law Subject matter extinguished
Agency ends if property that is subject matter of agency is “extinguished” (destroyed or title is transferred).

Termination by Operation of Law Subject matter extinguished
Agency ends if property that is subject matter of agency is “extinguished” (destroyed or title is transferred). Example: Rob manages office building. When owner sells the building, the subject of Rob’s agency is extinguished. The agency is terminated by operation of law.

Summary Terminating an Agency
Termination by the parties Agency coupled with an interest Termination by operation of law

Real Estate Agency Relationships Typical residential transaction
Sale of home usually involves more than one real estate agent: listing broker listing salesperson selling broker selling salesperson other cooperating agents who showed home to other prospective buyers

Real Estate Agency Relationships Terminology
Selling agent Cooperating agent In-house sale Cooperative sale Listing agent Real estate agent Broker Salesperson Client Customer

Real Estate Agency Relationships Historical background
Previously, there was considerable confusion as to who the agent represented in the transaction. A “Unilateral offer of subagency” provision in listing agreements provided that any cooperating MLS agent who found the buyer represented the seller.

However, many buyers thought the agent they were working with was representing them, not the seller. Some agents were also confused about which party they represented.

Agent might act as if she represented buyer, even though legally she represented seller, which created an inadvertent dual agency. Inadvertent (or accidental) dual agency: agent accidentally ended up representing both buyer and seller, without parties’ knowledge or consent.

In the 1990s, the unilateral offer of subagency was replaced with a “cooperation and compensation” provision: other MLS members act as cooperating agents, not seller’s subagents.

In the 1990s, the unilateral offer of subagency was replaced with a “cooperation and compensation” provision: other MLS members act as cooperating agents, not seller’s subagents. Cooperating agents can choose to represent either seller or buyer.

Historical Background Why agency representation matters
Buyer or seller needs to know who agent represents in order to evaluate what agent says or doesn’t say. Buyer can’t depend on seller’s agent for advice, and seller can’t depend on buyer’s agent.

Summary Real Estate Agency Relationships
Listing agent Selling agent Cooperating agent Unilateral offer of subagency Inadvertent dual agency

Types of Agency Relationships
Three types of agency relationships in real estate transactions are: seller agency buyer agency dual agency

Types of Agency Relationships Seller Agency
Traditionally, real estate agents almost always represented sellers. Buyer agency now common, but seller agency still most common agency relationship.

Seller Agency Establishing seller agency
Typically created with written listing agreement (employment contract): seller hires broker to find buyer for property in exchange for broker’s efforts, seller agrees to pay broker a commission under certain conditions

Seller agency can be established by oral agreement—even actions of seller and agent may be enough to create agency relationship.

Seller agency can be established by oral agreement—even actions of seller and agent may be enough to create agency relationship. But without written agreement, broker is not entitled to sue seller for commission.

Seller Agency Role of seller’s agent
Promoting seller’s interests: marketing property to best advantage, finding buyer, and negotiating sale on most favorable terms possible. Must be done according to seller’s instructions and rules of agency law.

Seller Agency Working with buyers
May perform some services for buyers: filling out offer, helping buyer apply for financing. Helps sell property: no violation of agent’s duty of loyalty to seller.

Seller Agency Working with buyers
May perform some services for buyers: filling out offer, helping buyer apply for financing. Helps sell property: no violation of agent’s duty of loyalty to seller. Must be sure buyer knows agent represents seller only—never give buyer advice.

Summary Seller Agency Establishing seller agency
Role of a seller’s agent Working with buyers

Types of Agency Relationships Buyer agency
Advantages of buyer agency: buyer gets the agent’s loyalty and confidentiality

Advantages of buyer agency: buyer gets the agent’s loyalty and confidentiality buyer gets the agent’s objective evaluation of the property, and advice on how much to offer

Advantages of buyer agency: buyer gets the agent’s loyalty and confidentiality buyer gets the agent’s objective evaluation of the property, and advice on how much to offer buyer gets help with negotiating the transaction

Advantages of buyer agency: buyer gets the agent’s loyalty and confidentiality buyer gets the agent’s objective evaluation of the property, and advice on how much to offer buyer gets help with negotiating the transaction buyer gets access to more properties

Buyer Agency Establishing buyer agency
Written buyer agency agreements typically contain these provisions: term of the agency characteristics of the property the buyer’s looking for price range of the property conditions under which the fee will be earned who will pay the fee the agent’s contractual duties

Buyer Agency Compensation
Three typical methods of compensating a buyer’s agent: retainer seller-paid fee buyer-paid fee

Buyer Agent’s Compensation Retainer
Retainer: a fee paid up front, before agent starts working for buyer.

Buyer Agent’s Compensation Retainer
Retainer: a fee paid up front, before agent starts working for buyer. Typically nonrefundable, but if buyer’s agent becomes entitled to other compensation (such as seller-paid fee), retainer will be credited against that amount.

Buyer Agent’s Compensation Seller-paid fee
Seller-paid fee: when buyer’s broker receives share of listing broker’s commission (also called a commission split).

Buyer Agent’s Compensation Seller-paid fee
Seller-paid fee: when buyer’s broker receives share of listing broker’s commission (also called a commission split). Most common compensation arrangement. Agreement may be written or oral. Agency representation not determined by which party is paying agent’s fee.

Buyer Agent’s Compensation Buyer-paid fee
Buyer-paid fee protects agent if buyer purchases FSBO (seller not represented by agent and not paying any commission).

Buyer-paid fee protects agent if buyer purchases FSBO (seller not represented by agent and not paying any commission). Buyer-paid fee may be: hourly rate, commission, or flat fee.

Buyer-paid fee protects agent if buyer purchases FSBO (seller not represented by agent and not paying any commission). Buyer-paid fee may be: hourly rate, commission, or flat fee. Agent and buyer must enter buyer agency agreement specifying terms and conditions of fee payment.

Summary Buyer Agency Establishing buyer agency
Advantages of buyer agency Compensation

Types of Agency Relationships Dual agency
Dual agency: when real estate agent represents both seller and buyer in same transaction.

Types of Agency Relationships Dual agency
Dual agency: when real estate agent represents both seller and buyer in same transaction. Requires written consent of both parties. Dual agent owes fiduciary duties to both clients.

Dual Agency Conflict of interest
Inherent conflict of interest: seller wants highest possible sales price, while buyer wants lowest price. Difficult for dual agent to promote interests of both parties at same time. However, in some situations, parties willing to accept dual agency.

Dual Agency Conflict of interest
If dual agent works within certain limitations, she can avoid violating agency duties owed to either party. Each party should be warned that he or she will not receive full representation.

Dual Agency Confidential information
Dual agent must not reveal confidential information from one party to other, or manipulate either party based on confidential information.

Dual agent must not reveal confidential information from one party to other, or manipulate either party based on confidential information. Must explain to each party at outset that he must withhold certain information.

Dual agent must not reveal confidential information from one party to other, or manipulate either party based on confidential information. Must explain to each party at outset that he must withhold certain information. Each party should understand agent will keep other party’s negotiating position confidential.

Dual Agency Impartiality
Dual agent must do his best to be impartial and treat both clients equally.

Dual Agency Impartiality
Dual agent must do his best to be impartial and treat both clients equally. Dual agency generally inappropriate when agent has ongoing personal or business relationship with one party.

Dual Agency Disclosure
Dual agent must obtain written consent from both parties.

Dual Agency Disclosure
Dual agent must obtain written consent from both parties. Failure to disclose violates Real Estate Law. Agent will face disciplinary action. Neither party may have to pay agent’s commission. Either party could rescind transaction.

Dual Agency Inadvertent dual agency
Seller’s agent working closely with buyer may unintentionally develop agency relationship with buyer, creating an inadvertent dual agency.

Seller’s agent working closely with buyer may unintentionally develop agency relationship with buyer, creating an inadvertent dual agency. Agent should comply with disclosure requirements and act in accordance.

Seller’s agent working closely with buyer may unintentionally develop agency relationship with buyer, creating an inadvertent dual agency. Agent should comply with disclosure requirements and act in accordance. Agent should avoid conduct giving other party wrong impression.

Agency Disclosure Requirements
Agency Relationships in Residential Real Property Transactions Act: requires all agents in transaction to disclose to buyer and seller which party (or parties) they’re representing.

Agency Relationships in Residential Real Property Transactions Act: requires all agents in transaction to disclose to buyer and seller which party (or parties) they’re representing. Applies to any transaction for property with 1-4 dwelling units.

Compliance involves two main steps: giving parties agency disclosure form

Compliance involves two main steps: giving parties agency disclosure form making specific disclosures and giving parties agency confirmation statement

Agency disclosure form: explains duties of seller’s agent, buyer’s agent, and dual agent.

Agency disclosure form: explains duties of seller’s agent, buyer’s agent, and dual agent. Doesn’t indicate which parties the agents in that specific transaction represent. Just provides general information about different types of agents, their duties to their clients, and their duties to third parties.

Listing agent must give seller agency disclosure form before seller signs listing agreement.

Listing agent must give seller agency disclosure form before seller signs listing agreement. Selling agent must give buyer form as soon as practicable before buyer signs offer to purchase.

Selling agent also must give form to seller (or to listing agent) as soon as practicable before offer is presented.

Selling agent also must give form to seller (or to listing agent) as soon as practicable before offer is presented. Each time agent gives form to one party, buyer or seller must sign form to acknowledge that he or she received copy.

Agency Disclosure Requirements Agency confirmation
Each agent also must inform parties, as soon as practicable, who he represents in transaction.

Agency Disclosure Requirements Agency confirmation
Each agent also must inform parties, as soon as practicable, who he represents in transaction. Disclosures must be confirmed in writing in agency confirmation statement (included in deposit receipt or separate document).

Summary Dual Agency and Agency Disclosure
Agency disclosure form Agency confirmation

Broker/Salesperson Relationship
Legal relationship between salesperson and her broker: salesperson is agent of broker. Salesperson not licensed to represent members of public directly, without broker.

Broker/Salesperson Relationship
Legal relationship between salesperson and her broker: salesperson is agent of broker. Salesperson not licensed to represent members of public directly, without broker. Broker primarily responsible for supervising salesperson’s real estate activities.

Broker/Salesperson Relationship Employee vs. independent contractor
Salesperson classified either as employee or independent contractor. Certain employment and tax laws apply only to employees

Salesperson classified either as employee or independent contractor. Certain employment and tax laws apply only to employees Independent contractor: hired for particular job, allowed to use own judgment in carrying out work.

Salesperson classified either as employee or independent contractor. Certain employment and tax laws apply only to employees Independent contractor: hired for particular job, allowed to use own judgment in carrying out work. Employee: supervised/controlled much more closely.

Employee vs. Independent Contractor
Is person employee or independent contractor? Factors include scheduling and manner of compensation: Employees generally work on employer-set schedule, for hourly wage or salary.

Is person employee or independent contractor? Factors include scheduling and manner of compensation: Employees generally work on employer-set schedule, for hourly wage or salary. Independent contractors generally set own schedule and are paid per job or commission.

Broker is independent contractor in relation to seller (or buyer): seller hires broker to find buyer for property—seller is primarily concerned with ultimate result, not how broker achieves result.

Broker is independent contractor in relation to seller (or buyer): seller hires broker to find buyer for property—seller is primarily concerned with ultimate result, not how broker achieves result. Salesperson may be broker’s employee or independent contractor: depends on broker supervision and method of compensation.

If broker requires salesperson to work certain hours, gives detailed instructions on marketing properties, and pays salesperson hourly wage, salesperson would be broker’s employee.

If broker requires salesperson to work certain hours, gives detailed instructions on marketing properties, and pays salesperson hourly wage, salesperson would be broker’s employee. Broker then must withhold money from salesperson’s salary for income tax, social security, unemployment insurance, and workers’ compensation.

Salesperson typically independent contractor: broker concerned with results (listings, sales, and closings) salesperson compensated by commission broker not required to withhold taxes from salesperson’s compensation

IRS requirements for salesperson to be considered independent contractor: substantially all salesperson’s compensation from commissions

IRS requirements for salesperson to be considered independent contractor: substantially all salesperson’s compensation from commissions salesperson works under written contract providing she won’t be treated as employee for federal tax purposes

Even if salesperson is considered independent contractor for tax purposes, Real Estate Law makes broker responsible for supervising salesperson. Broker may be held liable for salesperson’s misconduct.

Summary Employee vs. independent contractor
IRS requirements Broker as independent contractor

Lesson 8: Real Estate Agency Law

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Lesson 8: Real Estate Agency Law

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