©2011 Cengage Learning

California Real Estate Principles Chapter 4 Real Estate Agency ©2011 Cengage Learning

Chapter 4 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. ©2011 Cengage Learning

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) ©2011 Cengage Learning

Parties to the AGENCY LISTING Contract PRINCIPAL (Seller – property owner) appoints AGENT (Licensed real estate Broker) to find THIRD PARTY (Buyer) ©2011 Cengage Learning

Parties to the AGENCY BUYER-BROKER Contract PRINCIPAL (Buyer) appoints AGENT (Licensed real estate broker) to find THIRD PARTY (Seller – property owner) ©2011 Cengage Learning

CREATION OF AGENCY Agency = Authority BY AGREEMENT (Actual authority) -Orally -Written – Express Agency -Mutual Actions BY RATIFICATION (Implied authority) -OK an unauthorized agents action. -Principal accepts the acts of the agent. -Ostensible or Implied Agency. BY Estoppel (Relied Authority) -Allow an innocent party to believe that you are their agent and rely o that belief. ARE ©2011 Cengage Learning

AGENCY REQUIREMENTS Capacity of the parties Lawful objective Offer and Acceptance Consideration Written Compensation Agreement ©2011 Cengage Learning

Multiple Listing Service (M L S) Pool of licensees sharing listings Maximizes market exposure for owners Association of Realtors affiliation Most Association of Realtors (AOR) have Member status Affiliate status Seller pays listing broker who pays any co-operating broker ©2011 Cengage Learning

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 ©2011 Cengage Learning

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 one client’s fund with another client’s funds -Mixing client funds with the funds of the agent ©2011 Cengage Learning

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 ©2011 Cengage Learning

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 ©2011 Cengage Learning

DRE 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 Department of Real Estate $50,000 find per individual; $250,000 for multiple claims ©2011 Cengage Learning

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 ©2011 Cengage Learning

DUTIES OF EACH AGENT TO THE PRINCIPAL (Fiduciary relationship) -Disclose Material Facts -Disclosure of agency relationship -Loyalty, confidentiality, full disclosure -Accountability -Competent, professional care TO THIRD PARTIES -Disclose Material Facts -No Negligence -Make ONLY Correct Representations ©2011 Cengage Learning

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 ©2011 Cengage Learning

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 DIED IN ESCROW ©2011 Cengage Learning

Review Quiz Chapter Four With the permission of the seller, Broker A submits a listing to MLS inviting cooperating brokers to help find a buyer. This could be an offer of: Dual agency General agency Subagency Power of agency ©2011 Cengage Learning

Review Quiz Chapter Four 2. A broker has an agency agreement to represent just the buyer. This is an example of a: Dual agency Single agency In-house agency Listing agency ©2011 Cengage Learning

Review Quiz Chapter Four 3. Which of the following is not correct? All real estate salespersons must have written employment contracts with their brokers Real estate salespersons are able to contract directly in their own name as an agent with the seller The recovery fund may be used to reimburse qualified principals and buyers for damages suffered because of certain inappropriate acts by real estate licensees Most real estate agency agreements are between sellers and brokers, not buyers and brokers ©2011 Cengage Learning

Review Quiz Chapter Four 4. The Commissioner’s Regulations applies to all California: REALTORS® Realtist Real estate salespersons All of the above ©2011 Cengage Learning

Review Quiz Chapter Four 5. A broker receives a deposit from a buyer with no instructions to hold the check uncashed pending the seller’s acceptance of the offer. After the offer is accepted, the broker decides to put the check in a safe in the office for security purposes until the broker can get to the bank next week. The broker is: Guilty of conversion Innocent of any wrong doing Guilty of commingling Required to place the deposit into a trust fund ©2011 Cengage Learning

Review Quiz Chapter Four 6. A real estate broker, in order to entice a person to buy, states that the property conforms to all building codes. The agent knows a room was added without a building permit. The agent is guilty of: Misrepresentation Acting in a legal manner False promise Ostensible promise ©2011 Cengage Learning

Review Quiz Chapter Four 7. According to the real estate law, for supervising purposes, the relationship between a salesperson and a broker is: Fiduciary Independent contractor Employer-employee ostensible ©2011 Cengage Learning

Review Quiz Chapter Four 8. Receiving a commission from both the buyer and seller without full disclosure and approval is called: Dual agency Single agency Divided agency Implied agency 9. Real estate commissions are: Established by the California Association of Realtors Limited per the Commissioner’s Code of Ethics Determined by local Boards of Realtors Negotiable ©2011 Cengage Learning

Answers: Review Quiz- Chapter 4: Real Estate Agency C 6. A B 7. C B 8. C D 9. D C ©2011 Cengage Learning