Real Estate Agency Law
Agency Law- One party delegates the transaction of some lawful business or power to another which is usually a seller and or a buyer. When dealing with a third person that is not part of an agency arrangement, that party is called a customer. When a broker begins working with a seller, the licensee is known as the seller's agent. If a broker begins working with a buyer, the broker is known as the buyer's agent. If a broker is representing a buyer and a seller in a transaction, the broker is known as a dual agent. In any of these three scenarios the broker is representing a principal/client (seller/ buyer) and is therefore an agent of that principal/client. A "customer" is any party that the broker deals with/negotiates with on behalf of their client/principal.
Creates a Fiduciary Relationship - A fiduciary is one that is authorized to represent the interests of another in legal proceedings. A broker represents the seller or the buyer or both in a real estate transaction. A licensee therefore functions as a fiduciary.
Principal - This is the one being represented by an broker. In the real estate industry the principal is also known as "the client." This is usually, but not always, the one who will pay the broker for their services.
Broker - This is the entity who acts in a fiduciary capacity in behalf of the principal. In Washington the firm is an agent of a principal. The designated broker for the firm is an the agent of a principal. The affiliated broker of the firm is an agent of the principal. The principal being represent by all three agents could be a seller or a buyer or both. Usually, the affiliate broker of a firm enters into an agency agreement for the firm with a principal seller, buyer, or both.
Sub-Agent - Other affiliate brokers who are authorized by the broker to work in behalf of the principal. The principal must approve the use of sub (additional) agents.
Principal Reliance - The principal relies on the broker to protect their interests in a real estate transaction. This reliance can be expressed in a written or oral agency contract.
Beginning Agency Law - In order for an agency relationship to exist, the principal must have delegated responsibilities to the broker in regard to performance of REAL ESTATE BROKERAGE SERVICES on behalf of the principal. In other words, the principal must contractually stipulate that the broker is to provide the normal real estate services on behalf of the principal.
Express Contract - This is a contract that is expressed between the principal and the broker; between the client and the licensee.
Written or Oral Agreement - Agency contracts can be an oral agreement or a written contract. The State of Washington require the agency contract with a seller to be in writing. This is the Listing Agreement. Brokers of the buyer don't always have a written Buyer's Agency contract. If not in writing, the buyer's agent has an oral contract. Each licensee is required to inform their position of agency representation to all informed parties.
Broker Limits - An agency contract in the real estate industry is a limited contract. The agency contract limits the broker's action to those powers specifically agreed to in the contract. The agency powers are limited to powers within the real estate area. This is also known as a special agency relationship.
No General Agency Power - A real estate license does NOT have a general power of attorney in behalf of the principal. They cannot sign documents in behalf of their clients.
Types of Agency
When a principal/client enters into an agency contract with a licensee, the agency agreement will establish the powers that the principal is granting the broker. The licensee cannot exercise any powers beyond those granted under the agency agreement. The following are examples of the different types of agency.
"Universal Agency" - A written agreement where the broker has the actual power to sign legal documents for their principal. This is normally formed for people who are incapacitated physically or mentally. In regard to real estate, the broker under this agreement can act as if they were that person. The broker would have General Power of Attorney on behalf of the principal/client. This is rarely done, but if the principal were living abroad, the principal could give the broker universal agency power to allow sale of the property in question.
"General Agency" - This is similar to universal agency but it does involve a power of attorney designation. General agency includes all business affairs of the principal, but not personal aspects. A general agency would have the power to bind their principal on business and real estate matters.
"Specific Agency" (Special Agent) - This agency relationship gives the broker representative power, but it is limited to only one specific business activity outlined in their agency agreement. This is the form of agency that licensees are involved with regarding the principal's needs.
Firm - Normally, the firm and its designated broker does not have power of attorney nor does the designated broker need it. The client is capable of taking care of themselves, but needs help in one specific area; real estate.
Affiliate Broker - Affiliate brokers that are licensed with a firm legally, represent the principal that the broker works on behalf of the principal as the principals agent with real estate negotiations with customers.
Listing Agreement - The listing agreement creates specific agency. It only states "I will pay you a commission if you find a ready, willing and able buyer." The listing agreement does not give the firm of its designated broker the right to accept and bind the sale or to sign legal documents on behalf of the principal.
Terminating an Agency Contract
When a real estate agency (listing) contract is in effect between a principal (seller) and the broker, the parties to the contract have different opportunities to terminate their arrangement. The following represent the various ways that an agency contract can be terminated:
Mutual Agreement (Rescission) - If a principal and a broker mutually agree to form an agency contract, they can mutually agree to terminate the contract. This is called rescission.
Expiration Date - All listing agreements must have an expiration date. When that date is reached, the principal and broker have mutually agreed in advance that the listing agreement is over.
Fulfillment of the Purpose - If the goal of the listing agreement is reached, the sale of the property, the broker has Tendered Performance. The broker has completed their requirement under the agreement. The listing agreement has a specific piece of property. Once this specific property is sold, the agreement is completed.
Revocation by the Principal - The principal can unilaterally (one-sided) revoke the broker's authority to represent them. This can be done if no injury is caused to the broker.
Designated broker Costs - If the firm spent advertising money and is actively seeking a sale, the seller/principal may have to pay damages for breach of contract to the firm/designated broker.
Designated broker Interest - If a listing agreement is an "agency coupled with an interest," the seller/principal cannot unilaterally terminate the listing agreement. The seller is obligated until expiration date of the other agreement.
Renunciation by the Broker - A broker may at anytime revoke the listing agreement, if no loss is suffered by principal/seller. The broker probably could not back out of the agreement if:
Change of Business Conditions - If there are drastic changes to the property in question that changes its value, the broker or principal may pull out of the listing agreement.
War - When the U.S.A. goes to war with another country, if the principal and/or the broker are citizens of that belligerent country, the other party may terminate the listing agreement.
A valid contract employs someone to do specific legal tasks which involve representing the interests of the principal to a 3rd party. What kind of relationship is created by the contract?
B) lis pendens
C) fee simple
When a principal appoints someone to act on their behalf, an agency relationship is created. Which of the following is not essential to establish an agency relationship?
A) competency of the principal
B) a limited power of attorney
C) agreement of the parties
D) legal capacity of the agent
When an agency relationship is coupled with an interest:
A) the broker has made a secret profit at the expense of their principal
B) the broker received an interest-bearing note in payment of their commission
C) a suit has been filed for commission and the broker filed a lien on the
D) the agency can not be terminated by the principal before a stated expiration date
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