Real Estate
Principles and Practices
Chapter 7
Agency Law and Representation
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Key Terms
Agency
Agency by estoppel
Agency by
ratification
Agency law
Agent
Buyer agency
Client
Common law
Consensual dual
agency
Customer
Dual agency
Facilitator
Fiduciary
General agency
Limited agent
Ostensible agency
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Key Terms
Principal
Seller agency
Special agency
Statutory law
Subagency
Transactional agent
Universal agent
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Overview
“Whom do I represent?”
Common laws: evolved from custom and
court decisions
Statutory laws: enacted by the legislature
Agency representation:
Buyer
Seller
Dual agency
Subagency
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The Agency Relationship
Agency: one party
appoints another to act
on his/her behalf in
transacting business
with a 3rd party
Fiduciary: skill,
knowledge, and trust
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The Agency Relationship
Principal (client): hires the
agent to act on their
behalf
Agent: licensee who
represents the principal
Customer (third party): no
agency relationship
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The Evolution of the Real
Estate Business
MLS: cooperative service permitting
subscribing members to sell each
other’s listings
NAR: automatic subagent unless
declined
Indicate if subagency
is offered
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Classification of Agencies
Special Agency
Special Agency: one
specific act
Limited Time
Limited Purpose
Limited authority
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Classification of Agencies
General Agency
General Agency: may
speak for client in
specified matters
May have POA
Property manager
Salesperson to broker
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Classification of Agencies
Universal Agency
Universal Agency:
may speak for client
in all matters
POA most of the
time
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Creation of an Agency
Ostensible agency
implied agency or
Agency by estoppel:
third party is led to
believe that someone is
their agent
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Creation of an Agency
Agency by ratification:
“ratified” - agreed to
after the act
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Possible Agency
Relationships
Seller is the principal
Fiduciary relationship
between broker and seller
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Possible Agency
Relationships
Buyer is the principal
Fiduciary relationship
between broker and buyer
Compensation does not
necessarily determine
agency
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Possible Agency
Relationships
Buyer agency compensation options:
1. Flat fee or % of sales price
2. Seller pays fee
3. Each party pays per respective contract
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Possible Agency
Relationships
Listing agent must be informed that either:
1. Subagency is declined - buyer will pay
compensation
2. Buyer’s agent expects normal compensation
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Possible Agency
Relationships
Exclusive right to represent
Exclusive buyer agency
agreement
Open agency
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Possible Agency
Relationships
Buyer Self-Representation
Buyer is a customer with no representation
Buyer is treated honestly and fairly
May hire other specialist
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Possible Agency
Relationships
Subagency
Authorized by client and the designated
broker
Principal owes obligations to both
subagent and listing agent
Subagent bound by same fiduciary
duties
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Possible Agency
Relationships
Dual Agency
Broker represents both parties
Disclosure must be made early
Consensual dual agency requires
informed consent
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Exploring the Role of the
Facilitator
Facilitator / transactional
agent: acts as intermediary
No fiduciary responsibility
to buyer or seller
Pro: responsibility of agent
is to produce a sale
Con: diminishes
accountability to consumers
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Exploring the Role of the
Facilitator
Limited Agent: Licensee is
appointed to act for a buyer
or seller
Not considered dual agency…
unless the limited agent
also established a buyer
agency with the buyer who
purchases the property
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Agency and Nonagency
Relationships
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Agent’s Duties to the Client
and the Customer
Client/Principal
Customer
loyalty and honesty
disclose agency
obedience
avoid misrepresentation
full disclosure
present offers timely
skill
provide good service
confidentiality
provide information
accounting
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When the Seller is the
Principal
Always act in
best interests
of principal
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When the Seller is the
Principal
Obey all lawful
instructions
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When the Seller is the
Principal
Reveal all
latent defects
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When the Seller is the
Principal
Competence,
skill, and
knowledge
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When the Seller is the
Principal
Obey all lawful
instructions
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When the Seller is the
Principal
Accountable
for all money
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When the Buyer is the
Customer
Who the agent
represents
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When the Buyer is the
Customer
Information in a
fair and honest
manner
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When the Buyer is the
Customer
Write and
present all
offers
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When the Buyer is the
Customer
Service,
skill,
and care
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When the Buyer is the
Customer
True and honest
transaction
information
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When the Buyer is the Client
Assist in
negotiating the
lowest price
and most
favorable terms
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When the Buyer is the Client
Obey all lawful
instructions
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When the Buyer is the Client
a. Relationship with
the seller
b. True opinion
c. Seller information
d. Commission
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When the Buyer is the Client
Explain contract
Find property
Assist in
preparing offers
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When the Buyer is the Client
a. buyer’s motivation
b. willingness to offer
higher price
c. willingness to accept
other terms
d. Identity
e. future plans for property
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When the Buyer is the Client
Accountable
for all money
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