Chapter 4: Understanding Agency Law Flashcards

Chapter 4: Understanding Agency Law Flashcards

"Open buyer agency agreement:This agreement enables the buyer to enter into agreements with any number of brokers and is therefore not an exclusive type of buyer agency agreement. The buyer pays only the broker who finds the property that the buyer buys.The buyer owes the broker nothing, if the buyer finds and purchases a property without help from the broker.Exclusive buyer agency agreement:This agreement makes the broker the exclusive agent for the buyer, and no matter who finds the property that the buyer is seeking, a fee is owed to the broker, if and when the buyer buys the property. Even if the buyer buys property directly from an owner with no broker involved, the buyer still has to pay the exclusive agent a fee. This type of agreement is also called an exclusive right to represent.

Client:A client is another name for a principal.

Agency by ratification:An agency by ratification is created by accepting

circumstances that created the agency after the fact.Suppose a real estate agent, without authorization and without ever speaking to the seller, negotiates a deal for a house that's for sale by the seller. One day the agent arrives with a completed contract simply awaiting the seller's signature and acceptance of the deal. An agency by ratification probably has been created when the seller ratified what the agent had been doing by accepting the deal. I say "probably," because the agent wants a fee for his services and may have to sue the seller to collect.When that's the case, the courts determine whether an agency relationship existed from the beginning of the negotiations - based on the fact that the seller accepted or ratified the agent's behavior by accepting the deal.

Agency by estoppel:An agency by estoppel is created when a principal doesn't

stop an agent from going beyond the agent's normal duties, which thus gives the impression that an agency relationship has been established. Say you're the owner of a building and you tell your agent to show an apartment to a possible tenant. The agent goes ahead and negotiates a lease even though you didn't give the agent any direct authority to do so. The tenant assumes the agent has the authority and an agency by estoppel has been created.

Universal agents:An agent who acts on a client's behalf in all matters and

situations. Someone who has a power of attorney to act on someone's behalf in all real estate matters is an example of

a universal agent.Agency coupled with an interest:An agency coupled with an interest is a situation in which an agent has some kind of interest in the property that's

being sold. For example, suppose a part-time broker is also an architect. The broker/architect agrees to design some houses for a builder who's giving the broker/architect the listings for the sale of the finished houses. In essence the broker/architect made an investment in the project, so the builder can't cancel the agency agreement. If this sounds like a tie-in arrangement and an antitrust violation (see Chapter 3), remember that the broker/architect isn't making one activity conditional on the other. A tie-in arrangement would've been created if the broker had said that if the builder wanted him to sell the finished houses, the builder also had to hire him (as in pay him) to design the houses.In an agency coupled with an interest, it's as if the broker/architect was investing in the project.

Exclusive agency listing:In this type of listing agreement, a broker is hired to act as an exclusive agent, representing the owner in the marketing of the property. The broker, of course, earns a fee if the property sells. However, if the owner of the property sells the property without any help from the broker, the property owner won't have to pay the broker a fee.

Principal:A principal is the person you represent as an agent. This is

the person you have the agency relationship with.

The Relationship Between an Agent and a Principal:

fiduciary responsibilities

Accounting: As a real estate agent, you handle money and

sometimes large sums of it. Most often you'll handle the money that goes with the buyer's offer to purchase a property that is variously called the binder or earnest

money.Care: Care is a broad and general word that best

can be described as agents using their best efforts and skills on behalf of their clients' respective

interests.Confidentiality: The agent is expected to keep all

information that can harm the client's interest in the strictest confidence in addition to any personal information the client wants to be kept confidential, even if, in the agent's opinion, the information won't harm the client were it

known.Disclosure: The fiduciary duty of disclosure requires

you, as an agent, to reveal any facts you're aware of that benefit your client. Disclosure applies to information that may benefit the client even if the client hasn't asked about

it.Loyalty: Loyalty means always putting your client's

interests above everyone else's, including your own. You may want to read that last phrase again - including your own. You must never profit by doing something against

your client's interest.Obedience: Obedience, as a fiduciary

duty, requires you as an agent to follow the instructions of your principal.

Listing agreement:Establishes an agency relationship between an agent and

a property seller. The agent agrees to represent the seller in marketing the property. Here are the names and descriptions of the four types of listing agreements.

Customer:A customer is the other party to the transaction. In a typical

real estate transaction, there's you (the agent or sub agent), the principal or client (such as a seller), and "the customer (such as a buyer). The customer is considered and sometimes referred to, particularly in exam questions, as the third party.Exclusive agency buyer agency agreement: This agreement makes the broker the exclusive agent of the buyer, but it requires the broker to be paid only if the broker finds the property that the buyer ultimately