a flat fee, a negotiated commission rate paid upon the final

06 Law of Agency (5) Chapter 5: Creating Agency Flashcards

The Creation of Express AgencyExpress agency can be created in written or oral form. Both forms are considered valid agreements in New York, with the written form offering more clarity and protection for both parties.In either case, express agency is created when the principal explicitly appoints the broker/agent to act on their behalf.Broker Compensation: The TraditionsAlthough other forms of compensation are permitted (e.g., a flat fee), a negotiated commission rate paid upon the final purchase price of the property is traditional. And while a percentage rate range may be commonplace in a given region of the country (or state), an exact percentage rate is NOT set in stone but rather negotiated in writing between the broker and client.Implied Authority vs. Implied AgencyBefore moving on, Mustafa, I want to take a moment to draw a distinction for you between implied authority and implied agency. As I just pointed out, implied agency is a state of agency that should be clarified and elevated to express agency - written or oral - to avoid confusion or problems down the road.Implied authority, on the other hand, refers to legitimate actions an agent takes in order to complete duties that the principal has already expressly authorized. Implied authority rarely creates the level of concern that implied agency can.No Good Deed Goes UnpunishedThe agent, in trying to do a favor for a friend, could end up exposing themselves and their broker to an agency lawsuit.If the advice the agent gave turned out to be bad advice (and the party suffers a loss because they relied on that advice) the court may find that, in giving the advice, agency was created and the agent (and their broker) are negligent and liable.Because of this liability, it is important for license holders to ALWAYS get permission from their broker to practice gratuitous agency.Watch What You SayAn agent must be aware of whom they are representing at all times. Before meeting with any customer or client, think about who you are representing. Do not say things that could be misconstrued by a customer, making them think you are working for them. Until and unless you intend to

become their agent, do not say things like:I will take care of

everythingI will find a good home for youJust leave it to meI can help you get a good dealA client is owed a fiduciary duty whereas a customer is owed the lesser duties of

honesty and fairness - which are also owed to a client, of course.Here are five more examples of things that might be said to a customer or client. As you read through them, decide whether they are appropriate for conversation with a client, customer, or both...Written Agency With the Seller (cont.)As with the buyer-broker agreement, a listing agreement is NOT available through the New York Department of State Division of Licensing Services. Consequently, in order to achieve written agency via a listing agreement with the seller, a broker has the options of using a listing agreement from a state or local association of REALTORS® or creating one with the help of an attorney.

A Gratuitous ExampleBroker Bob's sister is looking to sell her house, and Broker Bob tells Sis that, if she wants, he can represent her in the transaction. Broker Bob then says that he won't charge her any commission. What a nice brother!But is this acceptable? It can be. In fact, it's not uncommon for a broker to gratuitously market a property for a friend or family member, or gratuitously help a friend or family member purchase a property.ConsentIdeally, an agency relationship is created as the result of the mutual agreement between the agent and the client (principal) in which the agent agrees to act on behalf of the client. In most cases, consent precedes the act (but not always). We will discuss these issues of timing and order shortly.It's important to note that both the agent AND the principal must give consent to the agency relationship.ControlControl has to do with the idea that the agent (broker or sponsored license holder) has authority to act on behalf of the client. Written agreements, contracts, and forms all contribute to the support and clarification of this concept of control.That said, a certain degree of control can be exercised without written agreements or documentation in place, but proceed with caution, Mustafa!Written Agency With the SellerWritten agency between a broker and a seller will usually take the form of a listing agreement, in which a principal authorizes the broker (and sponsored salesperson) to assist the principal in the sale of a real property.This agreement will contain information regarding the start and expiration dates of the representation, the duties of each party, and expectations for compensation.Agency by Ratification: Creating Agency RelationshipsAgency by ratification is created when an agent takes an unauthorized action on behalf of a principal which is accepted after the fact by the principal. The principal accepting the action of the agent (such as a seller accepting an offer brought by an agent) establishes the agency relationship.The principal might not have been a client at the time of the agent's action, but they became a client when they accepted the agent's action (such as accepting an offer).Ostensible Agency and Agency by Estoppel The not-so-distant cousins of implied agency are ostensible agency and agency by estoppel. Both are created when the

actions of an agent lead a third party to believe:Agency

exists between a principal and the agent (when it doesn't)ANDThe principal fails to take action to correct that impression at the timeWith ostensible agency, a principal allows a license holder to act in a way that causes a third

party to believe the license holder is that principal's agent.agency disclosure formrequired disclosure form that describes permitted forms of agency relationships and the rights and obligations those relationships entail; given upon the first substantive contact Salesperson Compensation: First Things First By now, you might be thinking, "That's great for the broker, but what about me... the humble but lovable salesperson?When do I get paid??" Well, Mustafa, let's talk about that