California Real Estate Principles, 10.1 Edition Chapter 3 Real Estate Agency

Chapter 3 Define agency and list the 3 ways an agency may be created. Discuss the fiduciary relationship that exists between a principal and a licensed real estate agent. Explain the difference between a single agency and a dual agency. List and give examples of real estate violations. Describe the agency differences between salespersons and brokers. List and give examples of six ways in which real estate agencies are terminated.

TYPES OF AGENTS Examples: UNIVERSAL – Court-appointed Guardian SPECIAL GENERAL UNIVERSAL Examples: UNIVERSAL – Court-appointed Guardian GENERAL – Business Manager (Recorded Power of Attorney) SPECIAL – Real Estate Broker (appointed by principal to negotiate or conduct business with other parties on behalf of the principal)

Parties to the AGENCY LISTING Contract PRINCIPAL (Seller – property owner) appoints AGENT (Licensed real estate Broker) to find THIRD PARTY (Buyer)

Parties to the AGENCY BUYER-BROKER Contract PRINCIPAL (Buyer) appoints AGENT (Licensed real estate broker) to find THIRD PARTY (Seller – property owner)

CREATION OF AGENCY Agency = Authority BY AGREEMENT (Actual authority) -Implied (Actions) - Express (Verbal or Written) BY RATIFICATION (Ostensible Authority) -Principal approves an unauthorized agents action. -Principal accepts the acts of the agent. BY Estoppel (Relied Authority – Detrimental Reliance) -Allow an innocent party to believe that you are their agent and rely on that belief.

AGENCY REQUIREMENTS Capacity of the parties Lawful Objective Disclosure and Confirmation of the Relationship Offer and Acceptance Implied or Expressed Agreement

Multiple Listing Service (M L S) Pool of licensees sharing listings Maximizes market exposure for sellers Association of Realtors® affiliation Most Association of REALTORS® (AOR) have Member status Reciprocal status Seller typically pays the listing broker who pays any co-operating broker

Type of Agency D E C Single Agency (One, not both) -Broker for the seller -Broker for the buyer Dual Agency (Both) -Broker for BOTH seller and buyer 3 steps required to establish Agency Relationship (DEC): D isclosure E lection C onfirmation (written) D E C

AGENCY VIOLATIONS Trust Fund Violations -Example: Agent fails to use proper Accounting Procedures 2. Misrepresentation -Incorrect statement -Withheld information 3. False Promises -False statement about future events 4. Divided Agency -Receiving funds from both buyer and seller without disclosing the facts to the parties 5. Commingling -Mixing client funds with the funds of the agent -Failure to account between clients’ funds

AGENCY VIOLATIONS 6. Conversion -Using client funds for your own personal use 7. Definite termination date -Required on all “exclusive” real estate contracts 8. Secret Profit -Undisclosed profit without permission of the parties

Problem Areas False advertising Dishonest dealing Misuse of trade name Trust Fund Handling Broker must keep record of all client funds Broker may have up to $200 to cover fees Broker just handle client funds by: Give to the proper party (principal) Deposit into neutral escrow account Put deposit into trust fund account Failure to handle trust funds correctly: Commingling

BRE Recovery Fund Finance by license fees Reimburses public for uncollectable judgments against licensees Licensee must pay fund back before doing business again Fees collected and administered by the California Bureau of Real Estate $50,000 find per individual; $250,000 for multiple claims

BROKER RESPONSIBILITY Acts of the licensees under them Obey principal’s lawful instructions Use due diligence to find a buyer or property Exercise reasonable care and skill Have a written contract and agency relationship with each principal No secret profit. Honest and fair dealing Account for all funds of the client Have written contract with each licensee Discloses all funds, commissions and fees Disclose agency agreement Make diligent inspect and disclose Reasonable skill and care. Good faith

DUTIES OF EACH AGENT To the Principal A Fiduciary* Duty of Upmost Care: Loyalty, Confidentiality and Obedience *a fiduciary holds the highest duty of care under the law To the Principal and Third Parties Diligent Exercise of Skill and Care Honest and Fair Dealing in Good Faith Disclose all Material Facts

INDEPENDENT CONTRACTOR OFFICE STAFF SALESPERSON OFFICE STAFF INDEPENDENT CONTRACTOR EMPLOYER & EMPLOYEE Pays own taxes & Social Sec. Control over their own activities No employee benefits Broker liable to principals & 3rd parties for actions of agents Broker withholds Social Security taxes Broker controls activities May receive employee benefits REAL ESTATE SALESPERSON Usually and independent contractor for tax purposes Always an employee under the real estate law by the Commissioner

TERMINATING AGENCY By Acts of the Parties - Fulfillment/completion of the purpose - Term Expires - Mutual agreement or consent of the principal and agent - Unilateral Action (Revoke, withdrawal, renounce, cancellation) By Law - Death of Either Party - Destruction of Property - Court Action