Chapter 5
Brokerage and
Agency
© 2015 OnCourse Learning
IN THIS CHAPTER
• Law that controls the rights and duties in
an agency relationship.
• Agency, types of agencies, and
obligations of a person under the law of
agency.
• Misconceptions that revolve around the
subject of agency today.
AGENCY IN PRACTICE
• Laws and practices have evolved to
address the confusion regarding agency
loyalties and relationships.
• Laws in almost every state now require
written disclosure of agency relationships.
• Buyers are more informed and often
request buyer representation from their
brokers.
• Many transactions involve both a seller
broker and a buyer broker thus both
parties have representation.
Fiduciary
• One who holds a position of trust.
• The person hired on another’s behalf is the
agent.
• The person who selects the agent to act on
his or her behalf is the principal.
• Subagents assist in accomplishing the
purpose of the agency.
• The principal has faith, trust, and
confidence in the fiduciary.
AGENCY RELATIONSHIPS
• A universal agent is authorized to handle all
affairs of the principal.
• A general agent is authorized to handle all
affairs of the principal concerning a certain
matter or property.
• A special agent has narrow authorization to
act on behalf of the principal.
– example is a real estate broker who has a listing
on real estate.
– broker can market the property for sale but
cannot bind the principal to a contract.
CREATION OF AGENCY
• An agency relationship created by an oral
or a written agreement between the
principal and agent is called an express
agency.
• An agency also may be created by the
words or actions of the principal and agent
indicating that they have an agreement
and is called an implied agency or
ostensible agency.
• Estoppel occurs if an individual claims
incorrectly that a person is his or her agent
and a third party relies on the incorrect
assertion.
TERMINATION OF AGENCY
• An agency relationship ends in
accordance with the terms of the
agency contract.
• By completing the terms of the
agency.
• By death or loss of capacity.
• By operation of law.
• Brokerage is the business of bringing
buyers and sellers together and assisting
in negotiations for the terms of the sale of
real estate.
• In the real estate field, a broker is defined
as:
– an individual licensed to sell, buy, exchange,
rent, lease, or option real property for a fee.
• Michigan and many other states add
collection of rents to this list.
Michigan Uniform State Antitrust Act
• There are certain types of trade
restraints that are so injurious to
competition that there can be no
justification for them.
– 1. price fixing
– 2. boycotts or concerted refusals to deal
– 3. territorial or customer allocation
– 4. tying agreements
Commission Arrangements
Net Listing
Retainer
Flat Fee
Commission Paid to Sales Associates
Commission Paid to Cooperating
Brokers
• Referral Fees
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•
•
•
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Brokerage Firm
• May be owned by a single licensed
broker (a sole proprietor) or by more
than one licensed person, such as a
partnership or a corporation.
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Multiple Listing Service
• MLS is a facility for the orderly
correlation, dissemination of
information and cooperation among
participants so that they may better
serve their clients, customers and the
public.
Agency Disclosure
• A buyer, seller, landlord, or tenant has the
right to know how they will be represented
when they are engaging in a real estate
transaction.
• Michigan passed its mandatory agency
disclosure law.
• The disclosure is required on all residential
sales of one to four family dwellings and all
vacant land to be used for one to four family
residential dwellings or condominiums.
Agency Disclosure
• Disclosure must be made prior to the
consumer disclosing any confidential
information to the licensee.
• The licensee is required to discuss all
agency relationships allowed under
Michigan law and provide the consumer
with a document indicating the agency
relationship.
Seller Agency
• A seller agency arrangement allows the
broker employed to market the seller’s
property for a given period of time.
• The listing contract is not a contract to sell
but an employment contract between the
seller and the broker.
• The seller has a right to expect agent will
act in his best interest and keep all
confidential information learned
confidential.
Buyer Agency
• Licensees represent buyers of real estate.
• A purchaser should expect that the licensee
would act in the purchaser’s:
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–
–
–
best interest
follow legitimate and legal instructions
advocate the purchaser’s price and terms
keep all pertinent information confidential
• The terms and conditions of the brokerage
relationship with the purchaser is expressed
in a Buyer Agency Agreement.
Subagency
• This arrangement generally involves two
competing real estate firms.
• Common where one company has the
seller under contract and a competing firm
has a buyer/customer interested in viewing
the property.
• The broker with the listing represents the
seller, and the broker who brought the
customer to the transaction also agrees to
represent the seller through the listing
broker.
Dual Agency
• When a real estate firm represents
both the buyer and seller in the same
transaction.
• Must be informed disclosure to all
parties.
• Both must agree in writing to the dual
relationship.
• May be intended or unintended.
Designated Agency
• The client (buyer or seller) has an
agency relationship with only those
persons named in the listing contract
or buyer agency contract.
Transaction Coordinator
• Michigan law allows a licensee to be
involved in a real estate transaction
without having an agency relationship
with either the buyer or seller.
• Care must be taken to merely broker the
deal without giving legal advice.
Agent’s Responsibility to Principals
•
•
•
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OLD CAR
Obedience
Loyalty
Disclosure of Information
Confidentiality
Accounting
Reasonable Skill, Care, and Diligence
Agent’s Responsibility to
Third Persons
• Voluntary disclosure of known material
facts
• Honesty
DUTIES AND LIABILITIES OF
PRINCIPALS
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Duties to Agents
Duties to Third Persons
Latent Defects
Patent Defects
Michigan Seller’s Disclosure Act
• Seller’s must honestly complete the form
• Notice must be delivered to the buyer before
purchase agreement is fully binding.
• Changes in structural, mechanical, and
appliance systems trigger seller obligation to
modify the form and deliver a copy to buyer.
• In both instances the buyer has 72/120
hours to void the contract based on method
of delivery.
CHAPTER TERMINOLOGY REVIEW
accidental agency
agency disclosure
agent
brokerage
Buyer Agency Agreement
caveat emptor
client
confidentiality
customer
designated agency
disclosure of information
dual agency
duty of disclosure
estoppel
express agency
fiduciary
general agent
Implied agency
Innocent misrepresentation
Latent defects
listing contract
Michigan Uniform State Antitrust Act
Michigan’s Seller Disclosure Act
misrepresentation
multiple listing service (MLS)
negligent misrepresentation
patent defects
principal
seller agency
seller’s disclosure statement
special agent
subagent
transaction coordinator
universal agent