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Chapter 5 Brokerage and Agency 2010©Cengage Learning. All Rights Reserved.
IN THIS CHAPTER Law that control the rights and duties in an agency relationship. Agency, types of agencies, and obligations of a person under the law of agency. Misconceptions that revolve around the subject of agency today. 2010©Cengage Learning. All Rights Reserved.
AGENCY IN PRACTICE 2010©Cengage Learning. All Rights Reserved. Laws and practices have evolved to address the confusion regarding agency loyalties and relationships. Laws in almost every state now require written disclosure of agency relationships. Buyers are more informed and often request buyer representation from their brokers. Many transactions involve both a seller broker and a buyer broker thus both parties have representation.
Fiduciary One who holds a position of trust. The person hired on another’s behalf is the agent. The person who selects the agent to act on his or her behalf is the principal. Subagents assist in accomplishing the purpose of the agency. The principal has faith, trust, and confidence in the fiduciary. 2010©Cengage Learning. All Rights Reserved.
AGENCY RELATIONSHIPS A universal agent is authorized to handle all affairs of the principal. A general agent is authorized to handle all affairs of the principal concerning a certain matter or property. A special agent has narrow authorization to act on behalf of the principal. – example is a real estate broker who has a listing on real estate. – broker can market the property for sale but cannot make decisions 2010©Cengage Learning. All Rights Reserved.
CREATION OF AGENCY An agency relationship created by an oral or a written agreement between the principal and agent is called an express agency. An agency also may be created by the words or actions of the principal and agent indicating that they have an agreement and is called an implied agency or ostensible agency. Estoppel occurs if an individual claims incorrectly that a person is his or her agent and a third party relies on the incorrect representation. 2010©Cengage Learning. All Rights Reserved.
TERMINATION OF AGENCY An agency relationship ends in accordance with the terms of the agency contract. Also by completing the terms of the agency. By operation of law. 2010©Cengage Learning. All Rights Reserved.
Brokerage is the business of bringing buyers and sellers together and assisting in negotiations for the terms of sale of real estate. In the real estate field, a broker is defined as: – an individual licensed to sell, buy, exchange, rent, lease, or option real property for a fee. Michigan and many other states add collection of rents to this list. 2010©Cengage Learning. All Rights Reserved.
Michigan Uniform State Antitrust Act there are certain types of trade restraints that are so injurious to competition that there can be no justification for them. – 1. price fixing – 2. boycotts or concerted refusals to deal – 3. territorial or customer allocation – 4. tying agreements 2010©Cengage Learning. All Rights Reserved.
Commission Arrangements Net Listing Retainer Flat Fee Commission Paid to Sales Associates Commission Paid to Cooperating Brokers Referral Fees 2010©Cengage Learning. All Rights Reserved.
Brokerage Firm May be owned by a single licensed broker (a sole proprietor) or by more than one licensed persons, such as a partnership or a corporation. 2010©Cengage Learning. All Rights Reserved.
Multiple Listing Service MLS is a facility for the orderly correlation and dissemination of listing information among participants so that they may better serve their clients, customers and the public. 2010©Cengage Learning. All Rights Reserved.
Agency Disclosure A buyer, seller, landlord, or tenant has the right to know how they will be represented when they are engaging in a real estate transaction. Michigan passed its mandatory agency disclosure law. The disclosure is required on all residential sales of one to four family dwellings and all vacant land to be used for one to four family residential dwellings or condominiums. 2010©Cengage Learning. All Rights Reserved.
Agency Disclosure Disclosure must be made prior to the consumer disclosing any confidential information to the licensee. This is commonly considered to be “at first meeting.” The licensee is required to discuss all agency relationships allowed under Michigan law and provide the consumer with a document indicating the agency relationship. 2010©Cengage Learning. All Rights Reserved.
Seller Agency A seller agency arrangement allows the broker employed to market the seller’s property for a given period of time. The listing contract is not a contract to sell but an employment contract between the seller and the broker. The seller has a right to expect agent will act in his best interest and keep all confidential information learned confidential. 2010©Cengage Learning. All Rights Reserved.
Buyer Agency Licensees represent buyers of real estate. A purchaser should expect that the licensee would act in their: – best interest – follow legitimate instructions – advocate their price and terms – keep all pertinent information confidential The terms and conditions of the brokerage relationship with the purchaser is a Buyer Agency Agreement. 2010©Cengage Learning. All Rights Reserved.
Subagency This arrangement generally involves two competing real estate firms. Common where one company has the seller under contract and a competing firm has a buyer/customer interested in viewing the property. The broker with the listing represents the seller, and the broker who brought the customer to the transaction also agrees to represent the seller. 2010©Cengage Learning. All Rights Reserved.
Dual Agency When a real estate firm represents both the buyer and seller in the same transaction. Must be disclosed to all parties. Both must agree in writing to the dual relationship. May be intended or unintended. 2010©Cengage Learning. All Rights Reserved.
Designated Agency the client (buyer or seller) has an agency relationship with only those persons named in the listing contract or buyer agency contract. 2010©Cengage Learning. All Rights Reserved.
Transaction Coordinator Michigan law allows a licensee to be involved in a real estate transaction without having an agency relationship with the buyer or seller. Intent is to provide an agent with an opportunity to participate in a transaction in which company policy does not allow the type of agency cooperation being offered by the listing company. 2010©Cengage Learning. All Rights Reserved.
Agent’s Responsibility to Principals Obedience Loyalty Disclosure of Information Confidentiality Accounting Reasonable Skill, Care, and Diligence 2010©Cengage Learning. All Rights Reserved. OLD CAR
Agent’s Responsibility to Third Persons Misrepresentation of fact Negligent misrepresentation Innocent misrepresentation Michigan law has established that a seller’s broker is not liable for statements made to a buyer/customer regarding the condition of the property. 2010©Cengage Learning. All Rights Reserved.
DUTIES AND LIABILITIES OF PRINCIPALS Duties to Agents Duties to Third Persons Latent Defects Michigan’s Seller Disclosure Act – Act requires that sellers disclose everything they know about their property. – notice must be delivered in person, by fax, or by registered mail within 72 or 120 hours. 2010©Cengage Learning. All Rights Reserved.
accidental agency agency disclosure agent brokerage Buyer Agency Agreement caveat emptor client confidentiality customer designated agency disclosure of information dual agency duty of disclosure estoppel express agency fiduciary general agent CHAPTER TERMINOLOGY REVIEW 2010©Cengage Learning. All Rights Reserved. Implied agency Innocent misrepresentation Latent defects listing contract Michigan Uniform State Antitrust Act Michigan’s Seller Disclosure Act misrepresentation multiple listing service (MLS) negligent misrepresentation patent defects principal seller agency seller’s disclosure statement special agent subagent transaction coordinator universal agent
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