Chapter 5
Brokerage and
Agency
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IN THIS CHAPTER
• Law that control 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.
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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.
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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.
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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
make decisions
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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
representation.
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TERMINATION OF AGENCY
• An agency relationship ends in accordance
with the terms of the agency contract.
• Also by completing the terms of the
agency.
• By operation of law.
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• Brokerage is the business of bringing buyers
and sellers together and assisting in
negotiations for the terms of 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.
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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
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Commission Arrangements
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Net Listing
Retainer
Flat Fee
Commission Paid to Sales Associates
Commission Paid to Cooperating Brokers
Referral Fees
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Brokerage Firm
• May be owned by a single licensed broker
(a sole proprietor) or by more than one
licensed persons, such as a partnership or
a corporation.
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Multiple Listing Service
• MLS is a facility for the orderly correlation
and dissemination of listing information
among participants so that they may
better serve their clients, customers and
the public.
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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.
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Agency Disclosure
• Disclosure must be made prior to the
consumer disclosing any confidential
information to the licensee.
• This is commonly considered to be “at first
meeting.”
• The licensee is required to discuss all agency
relationships allowed under Michigan law
and provide the consumer with a document
indicating the agency relationship.
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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.
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Buyer Agency
• Licensees represent buyers of real estate.
• A purchaser should expect that the licensee
would act in their:
– best interest
– follow legitimate instructions
– advocate their price and terms
– keep all pertinent information confidential
• The terms and conditions of the brokerage
relationship with the purchaser is a Buyer
Agency Agreement.
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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.
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Dual Agency
• When a real estate firm represents both
the buyer and seller in the same
transaction.
• Must be disclosed to all parties.
• Both must agree in writing to the dual
relationship.
• May be intended or unintended.
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Designated Agency
• the client (buyer or seller) has an agency
relationship with only those persons
named in the listing contract or buyer
agency contract.
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Transaction Coordinator
• Michigan law allows a licensee to be
involved in a real estate transaction
without having an agency relationship
with the buyer or seller.
• Intent is to provide an agent with an
opportunity to participate in a transaction
in which company policy does not allow
the type of agency cooperation being
offered by the listing company.
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Agent’s Responsibility to Principals
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OLD CAR
Obedience
Loyalty
Disclosure of Information
Confidentiality
Accounting
Reasonable Skill, Care, and Diligence
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Agent’s Responsibility to
Third Persons
Misrepresentation of fact
Negligent misrepresentation
Innocent misrepresentation
Michigan law has established that a
seller’s broker is not liable for statements
made to a buyer/customer regarding the
condition of the property.
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DUTIES AND LIABILITIES OF
PRINCIPALS
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Duties to Agents
Duties to Third Persons
Latent Defects
Michigan’s Seller Disclosure Act
– Act requires that sellers disclose everything
they know about their property.
– notice must be delivered in person, by fax, or
by registered mail within 72 or 120 hours.
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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
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