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Agency: The Relationship Between Agent and Client
What Is Agency?
Agency is a legal concept and the root of all agent/client relationships. The law of agency describes agency as a relationship where one party (the agent) accepts responsibility for representing another party (the principal or client) in dealing with a third party.
In a real estate transaction, agency applies to the relationship that exists between a brokerage (real estate company) and its client (seller or buyer). While the person the client typically deals with is commonly referred to as an agent (salesperson or broker), the legal relationship is actually between the client and the brokerage (real estate company). For example, the parties to a brokerage agreement to sell a property will be the brokerage and the owner. An agent (salesperson) normally working as an "Independent Contractor" for the brokerage will usually be authorized by the brokerage to enter into such contracts on its behalf. An Agent is a person who is authorized to act on another person's behalf. The person for whom he acts is called his Principal. Because the Agent has authority given to him by the Principal, he can create a legal relationship between the Principal and a third party.
The relationship between an agent and his principal is created by contract. Under the Agency Contract the agent is given authority to do certain things in his principal's place. In exchange for the service provided by the agent to act on his principal's behalf, the principal pays the agent a fee or commission. Agents are not employees. The distinction between an agent and an employee is the degree of control and method of remuneration. A principal tells the agent what he wants and leaves it to the agent how to bring about the result. An employer, on the other hand, tells the employee what to do and how to do it. Furthermore, the agent is usually paid by way of a commission that becomes payable only when he brings in the result (sells or locates a property for a client). An employee, instead, expects to be remunerated for the number of hours he works regardless of whether or not the result is accomplished. Real Estate Agents are a particular kind of agents. A real estate agent acts on behalf of his principal, almost always the Seller, but can also act on behalf of a Buyer and can, in fact, act on behalf of both Seller and Buyer at the same time subject to certain restrictions. The contract that spells out the terms and conditions of the authority confered by a Seller to the real estate agent is called the Listing Agreement. With the Buyer, the name changes to Buyer's Agency Agreement.
FIDUCIARY RELATIONSHIP
The agency relationship created between a principal (client) and an agent (salesperson) is described as a fiduciary relationship; that is, it is based upon faith and trust. The word "fiduciary" comes from the Latin word fides, which is the Latin word for faith. Thus, the law expects of the agent faithful performance of the lawful instructions of the principal; highest loyalty to the best interests of the principal; honesty and faithfulness; and full disclosure of facts and information.
DUTIES OF AN AGENT TO A CLIENT
Undivided Loyalty:
An agent must act in the client’s best interests. An agent must put the client’s interests ahead of anyone else’s, including his own.
Obey Instructions:
The agent must obey the client’s lawful instructions and not act beyond the authority granted by the client.
Confidentiality:
All information received from a client or obtained as a result of representing that client must be kept confidential.
Reasonable Care and Skill:
It is expected that agents will perform at a level reasonably expected of competent real estate professionals. An agent is not expected to have expertise beyond this, unless the agent implies or states such expertise.
Full Disclosure:
An agent must disclose to the client all known material facts which may affect or influence the client’s decision in the transaction.
Full Accounting:
An agent is accountable for all money or property entrusted to the agent by the client.
DUTIES OF THE CLIENT TO THE AGENT/BROKERAGE
In response, the principal takes on certain obligations to the agent. The principal is liable for the agent's compensation; that is, when a broker has performed on the listing, the principal is obligated to pay the broker for the services rendered. It is not necessary for the property actually to sell in order for the broker to be able to claim a commission; the listing merely authorizes the broker to find a "ready, willing and able" buyer. When the broker has done so, the broker has earned the commission, even though it is not normally paid until the transaction has closed.
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Additionally, the principal is responsible to the agent for indemnification. The principal is obligated to indemnify the agent against loss arising because of the principal's act. If a seller gives false information to the broker, and the broker, without notice to the contrary, passes on the information to the buyer, the seller is liable for any damages; generally, the broker is not. The law in each case would determine whether or not the broker should have known that the information was false. If the court decides that the broker should have known, then both the broker and seller would be liable.
NOT ACT OUT OF SELF-INTEREST
Because the agent may not act out of self-interest, any negotiations must be conducted without regard to how much the agent will earn in commissions. All states forbid agents to BUY property listed with them for their own accounts or for accounts in which they have a personal interest without first disclosing (telling) that interest and receiving the principals (clients) consent. Also, neither brokers nor salespersons may SELL property in which they have a personal interest without informing the purchaser of that interest.
A BROKER/SALESPERSON CANNOT HIDE THE FACT HE IS AN OWNER OR PARTIAL OWNER, OF A PROPERTY HE HAS LISTED, TO A POTENTIAL BUYER. HE MUST DISCLOSE (TELL) THE BUYER OR POTENTIAL BUYER HE HAS INTEREST IN THE PROPERTY. This fact must be disclosed in all advertising including media, print and on all WEBSITES
A BROKER/SALESPERSON , IF IN A BUSINESS RELATIONSHIP WITH A PERSON(S) WHO HAS A PROPERTY LISTED FOR SALE WITH SAID BROKER/SALESPERSON, MUST DISCLOSE THE FACT THAT HE HAS A BUSINESS RELATIONSHIP WITH THE SELLER OF THE PROPERTY TO ALL POTENTIAL BUYERS OR BUYERS.
PUFFING
Statements of fact, however, must be accurate. Exaggeration of a property's benefits is called PUFFING. While puffing is legal, real estate agents must ensure that none of their statements can be interpreted as fraudulent. FRAUD is the intentional misrepresentation of a material fact in such a way as to harm or take advantage of another person. That includes not only making false statements about a property but also intentionally concealing or failing to disclose important facts.
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