Example: Any customer, plus all other real estate

06 Law of Agency (2) Chapter 2: Roles People Play in Agency

Relationships (Client or Customer?) Flashcards third partyfrom a license holder's perspective, any person involved in a real estate transaction other than the client customeran individual with whom a license holder has no agency relationship nor fiduciary duties but to whom fairness and honesty are still required General Public Roles: Third PartyA third party is ANY person involved in your real estate

transaction who is not your client.Explanation: While similar

to a customer, "third party" is a more encompassing term that includes all non-clients in a transaction.Third Party

Example: Any customer, plus all other real estate

professionals in a transaction (such as inspectors, title officers, loan officers, etc.).Third parties = all non-clients in a transaction.For the listing agent, that means the buyer, title officer, inspector, loan officer, the insurance agent, the appraiser... they are all examples of third parties."Third party" includes customers as well as other non-client individuals.A third party is anyone with whom the license holder does NOT have an agency relationship.Non-Professionals (General Public) in Agency PrincipalClientCustomerThird party

General Public Roles: ClientA client is an individual who has signed an agency

agreement with a broker, authorizing that broker to

represent them in a real estate transaction.Explanation:

Clients are the people you will work for as a salesperson - they're the people with whom you sign agency agreements and the people you represent. A client is not just "a"

principal; a client is "your" principal.Client Example: Jami

signed an agency agreement with you to represent her in the sale of her home, 6602 Castle Drive. Jami is your client (your principal), and you owe her fiduciary duties as you must represent her best interests in the transaction.General Public Roles: PrincipalOur key term definition of "principal" actually provides two possible usages (three if you count the financial definition

not being considered here):As an individual who authorizes

an agent to represent their interests as a client in a real estate transactionAs any major party to a real estate transaction (buyer, seller, landlord, tenant)Principal Usage

1 Example: Jami is looking to sell her home, 6602 Castle

Drive, and has entered into an agency relationship with Broker Betty. Jami is Broker Betty's principal.Principal

Usage 2 Example: Jami recently sold her home, 6602

Castle Drive, to Jenna. As the seller and buyer, Jami and Jenna are considered the principals of the 6602 Castle Drive transaction.General Public Roles: CustomerA customer is a person with whom no agency relationship exists and to whom no fiduciary duties are owed. The customer is usually on the other side of the transaction and represented by another license holder, but not always.A license holder can work with a customer to achieve that customer's goals and still not have entered into an agency (fiduciary) relationship with that customer.Customer on the

other side of the transaction example: If you are

representing the seller in a real estate transaction, the

buyer who has signed an agency agreement with another license holder is on the "other side of the transaction" and is considered a customer to you.Customer a license holder

might work with directly example: A buyer asks you to show

them available properties to purchase but does NOT sign a buyer representation agreement with you. You agree to show the customer some properties in hopes that they will eventually sign a representation agreement with you. (Not usually advised.)No matter the circumstances, the duties of fairness and honesty are still required of a license holder in their dealings with customers.The Fiduciary (Client-Owed) Duties: OLD CAR agents owe their clients the full fiduciary duties of OLD

CAR:ObedienceLoyaltyDisclosureConfidentialityAccounting

Reasonable CareAs you can tell - even without the full explanation that's coming your way shortly - OLD CAR represents a much higher level of obligation than the non-fiduciary duties of honesty and fairness.clientsomeone who has entered an agency relationship with a license holder; also known as a principal

principalthe client of a broker in an agency relationship; the parties to a contract in a real estate transaction (as opposed to license holders, lenders, escrow agents, etc.); also, the amount borrowed in a loan from which interest is accrued More Customer ExamplesIf you are the listing agent, the buyer is a customer to you.If you are the buyer's agent, the seller is a customer to you.If you are the landlord's agent, the tenant is a customer to you.If you are the tenant's agent, the landlord is a customer to you.Client and Principal Comparison: Client = Your PrincipalIt can be easy to confuse principals and clients. The words

are often used interchangeably. So, let's break it down:A

principal is any major party to the real estate transaction (buyer, seller, landlord, tenant) or an individual who has authorized an agent to represent their interests in a real estate transaction.Compare this to a client, who is a party who has signed an agency agreement with you or your broker to represent their interests in a real estate transaction. So client is a more narrow term used to describe principals with whom you have an agency relationship.In other words, a client is YOUR principal. You may work with other principals (and their agents), but your principal is your client. You represent your client's interests.And you work for your client.Client and Customer Comparison: Commission Until an agency relationship is formed, the agent is not guaranteed to earn the customer's commission in a sale. A customer could end up choosing another agent, after all.An agency relationship assures there is some form of commitment between the agent and the client. Turn your customers into clients with a written agency agreement!(You'll notice that I harp on this a lot.) The Non-Client Duties of Honesty and Fairness License holders owe all parties (customers, third parties,

and clients) at least the following two duties:Duty of

Honesty: License holders are expected to never mislead

parties to a transaction. This includes not giving false promises and always disclosing any material fact to a transaction - especially regarding property condition.Duty of

Fairness: License holders are expected to act in a manner

that is fair to all parties. This includes always disclosing their agency relationships so that it is clear who they are representing.Client and Customer Comparison: Working for ClientsUnderstanding the difference between a customer and a client is crucial for understanding agency relationships. By law, license holders are expected to give differing levels of service to customers and clients. Here's a quick snapshot

of the difference:A broker works for a client.A broker works