Agency Law
Version 7.11
Learning Objectives
Upon completion of this course, participants will be able to:
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Understand how common law affects real estate law
Define terms used within this chapter
Identify the six keys of a fiduciary responsibility
Explain the importance of full disclosure
Learning Objectives
Upon completion of this course, participants will be able to:
• Understand the ways an agency relationship can be created or
terminated
• Explain the differences between the types of agency relationships
• Recognize the risks in accepting a dual agency relationship
• Discuss how designated agency can be safer than dual agency
Learning Objectives
Upon completion of this course, participants will be able to:
• Discuss the benefits afforded to clients by buyer’s agents
• Identify the opportunities of buyer’s agency
• Explain the general provisions of a buyer contract
• Understand the possibilities for fee arrangements within a buyer agency
situation
Learning Objectives
Upon completion of this course, participants will be able to:
• Recognize the variation of real estate disclosure law between states
• Understand the broker’s responsibility to decide what type of agency
relationship his/her employees may generate
• Discuss the importance of broker supervision and training
• Identify current trends in the real estate industry
The Basics of Agency Law
History and Background of
Agency Law
"What do you mean, you don’t represent me? We have been together 2
weeks, looked at over 20 houses and you are getting a commission when I
buy this house! How can you say you are working for the person who owns
the house?”
Real estate agents may act as the agent of a seller, a buyer, or in some
states, both. An agent may be generally defined as someone who
represents another, in dealings with third parties.
Common Law
• The principles of agency have their roots in “common law” which
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developed in England centuries ago based on judicial decisions for
the long term benefit of society. Common law today forms the basis of
each state’s legal system; except for Louisiana, which is based on the
French legal system.
Agency law concerns any “principal-agent” relationship.
The law of agency is based on Latin – “Qui facit per alium, facit per
se.” This translates to “He, who acts through another, is deemed in
law to do it himself.”
Traditional Common Law
Agency Duties
When trying to remember the agent’s common law duties, we can
use the acronym COALD. COALD stands for Care, Obedience,
Accounting, Loyalty, and Disclosure. Let’s take a closer look at each
of these duties.
Care
• The agent must show “reasonable care and skill.” If an
agent is not exercising care in all he or she does, the results
could be unfavorable for the agent.
Accounting
• Accounting refers to all money that is handled on
behalf of the principal.
• All funds must be deposited into special escrow or
trust accounts and can never be mixed with the agent’s
personal funds.
Loyalty
• The agent’s loyalty must be 100% to the principal.
The agent must put the principal’s interest above all
others.
• Along with loyalty to a client comes confidentiality.
Disclosure
• An
agent must be sure to provide the proper disclosure to
the principal in any situation where it is necessary. Failure to
provide proper disclosure, even unintentionally, could be
considered fraudulent and action could be taken against the
agent.
Agent Responsibilities to
Third Parties
• An agent’s primary responsibility is to the principal.
However, agents are also obligated to deal with third parties,
which in most states are called “customers.” An agent works
with third parties on behalf of the principal. When dealing with
third parties, agents are required by law to act with honesty,
integrity and fair business dealings. It is important to
remember the laws connected to disclosure when dealing with
third parties. Giving false statements or omitting information
could lead to loss of commission, or in serious cases, loss of
license.
Test your Knowledge!
A(n) _____ may be generally defined as someone who
represents another, in dealings with third parties.
A. Consumer
B. Agent
C. Client
D. Principal
(Answer by clicking in the feedback panel)
Fiduciary Responsibilities
•The fiduciary duties pick up where the common law duties left off.
You will notice that for the most part, the duties are the same, with
the exception of confidentiality. Under the common law duties,
confidentiality tends to get lumped in with disclosure. The most
common fiduciary responsibilities can be summed up as:
• Loyalty
• Obedience
• Confidentiality
• Disclosure
• Reasonable care and diligence
• Accounting
Loyalty
• Loyalty
refers to the fact that the agent must
demonstrate loyalty by acting in the best interests of the
principal or client. If you take a listing from a seller, you
are duty bound to try to get the best deal for your client.
You have to work for the best price and terms. You have
to investigate all offers received and strive to maximize
the benefits to the seller.
Obedience
•Obedience means that you as agent are under the control of your principal
and must obey their instructions; as long as they are within the law.
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Vicarious Liability: Liability that is imposed for another's acts
because of imputed or constructive fault (as negligence). This means
that the principal is responsible for the acts of the agent, if the agent is
following instructions from the principal.
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Respondeat Superior: A doctrine in tort law that makes a master
liable for the wrong of a servant. The doctrine making an employer or
principal liable for the wrong of an employee or agent if it was
committed within the scope of employment or agency. The definition
from Latin translates to “let the superior give answer.” It means that the
principal can be held accountable for any harm caused through the use
of an agent.
Confidentiality
• Confidentiality means the agent owes a bond of
confidentiality to the principal or client. As agent, you may
not discuss or reveal facts or information that may harm
the interests of your client.
• For example, as an agent you would be prohibited from
revealing personal information about a client’s marital
problems, financial problems or need to sell a property.
You may not disclose a price that a principal has indicated
as acceptable for a sale.
Disclosure
• Disclosure laws require that an agent must make a full disclosure, in
a timely fashion, of all known facts that are “material” to the
transaction.
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Material:
Of, relating to, or consisting of physical matter
Being of real importance or consequence
Being an essential component
Being relevant to a subject under consideration
Being such as would affect or be taken into consideration by a
reasonable person in acting or making a decision
Disclosure is required, even if the effect is adverse and might result in quashing the
deal. Disclosure is required even if the information is discovered after a
purchase contract is signed.
Duty of Care
• Reasonable care and diligence must be employed by
the agent. Expectations of the agent exceed simply
finding a buyer. The agent is considered to be qualified to
exercise judgment and be knowledgeable about the title
and physical considerations of the property.
Accounting
• Accounting for monies or contracts received on behalf of a
client or principal is part of the agent’s fiduciary
responsibilities. Monies received by an agent as earnest
money for a deposit according to a purchase contract are to
be held in trust for the principal and delivered in a
reasonable time. Brokers who retain trust funds must do so
in a trust account that is separate from their own accounts.
Trust Accounts
• In most states it is mandatory that all brokers maintain a
separate account in a financial institution in that state as a trust
account in which all down payments, earnest money deposits,
advance listing fees or other trust funds received by the agent
must be deposited unless everyone with an interest in the funds
has agreed otherwise in writing.
• In some states brokers are only allowed to use interest bearing
accounts. In others, only noninterest bearing account may be
used.
•The biggest hazard of dealing with trust accounts is the
commingling of funds. The commingling of funds involves mixing
of funds to be deposited in the trust account mingling with the
broker's personal funds.
Test your Knowledge!
An agent should always obey the instructions of their client,
unless:
A. The instructions are illegal
B. The action doesn’t make sense
C. The instructions make the sale difficult
D. The agent doesn’t agree with the client
(Answer by clicking in the feedback panel)
Version 7.11
Developing Agency
Relationships
Creation of Agency
• An
agency relationship is a moral and legal obligation
between two parties. It takes two to tango! Both parties must
agree to it, and both accept obligations under the
relationship.
Here are some types of Agency Relationships:
• Expressed Agency
• Implied Agency
• Agency by Estoppels
• Agency by Ratification
Expressed Agency
Expressed Agency – An actual agency created by the
written or spoken words of the principal authorizing agent to
act.
Implied Agency
Implied Agency – An implied agency may occur unwittingly
or unknowingly. It arises from actions, not words.
Agency by Estoppels
Agency by Estoppels – An agency that is not created as an
actual agency by a principal and an agent but that is
imposed by law when a principal acts in such a way as to
lead a third party to reasonably believe that another is the
principal’s agent and the third party is injured by relying on
and acting in accordance with that belief.
Agency by Ratification
Agency by Ratification – There is no formal definition of this
in the Merriam-Webster’s Dictionary of Law. Suppose you
were an agent for a buyer, you approached an owner who
was trying to sell his property privately and got permission to
show it to your buyer. If your buyer then made an offer that
was accepted, the seller would enter into an agency by
ratification when he signed the purchase agreement.
Misconceptions about the
Creation of Agency
• Misconception Number One: The agent who is showing
you a property automatically represents you.
• Misconception Number Two: In order to create an agency
relationship, a client must provide immediate compensation.
• Misconception Number Three: The party that pays the fees
determines agency relationships.
The Effects of Agency
Relationships
New real estate professionals may not immediately
recognize their career as one of the most lawsuit-laden
fields in the country. The chances of real estate
professionals being sued is quite high due to the various
forms of legal liability to which they are exposed.
Contract Liability
The listing agreement between a real estate broker and a
seller typically requires the broker to exercise his or her
“best efforts” to find a buyer for the seller. But the term “best
efforts” is entirely too open to interpretation, so if the seller
believes that a busy broker has not actually exercised his or
her “best efforts” to locate a suitable buyer, the real estate
broker may be looking at a lawsuit seeking damages for the
delay in selling the real estate that is attributable to the
broker or agent’s failure to exercise his or her best efforts.
Even if the broker wins, he or she may still have to pay legal
fees, and the time and worry spent on the lawsuit could
keep him or her from other clients that need attention.
Tort Liability: Negligence and
Fraud
Anyone could be held liable for negligence in just about
anything they do that involves a risk. For example, if you are
riding your bike and you cause a fender-bender because of
your careless riding, you could be sued for committing a “tort.”
The critical difference in tort liability between the average
person and skilled professionals is known as “standard of
care.” As an ordinary bike-riding citizen, you would be held to
an ordinary standard of care; breach of this care would subject
you to any damages caused by your carelessness. In the case
of real estate professionals, brokers are held to a particularly
high standard of care (ordinary care is not enough) when it
comes to their professional activities, and can be sued for
malpractice (think doctors) if they fail to meet this standard.
Licensing Regulations
As you are certainly aware, real estate professionals need to
be licensed; in order to obtain a license, they need to
subscribe to certain professional standards of conduct, breach
of which could subject them to liability. Many of these
standards are imposed by statute as opposed to rules set forth
by the Commission or an association. The biggest difference
(in some states) between an association rule and a public
statute is that if a professional violates a private rule, he or she
usually will be liable only to revocation of license, whereas if
the professional violates a statute, he or she can be sued for
damages suffered by a seller or buyer.
Constructive Notice and
Imputed Notice
• The sharing of information is crucial in the agent/client relationship. Agents
and clients need to build a certain level of trust between them, and sharing
information is a great way to do so.
• Constructive notice actually can be described as giving notice without
giving notice. Instead of handing a person notice of some fact, the person
giving notice could post it on a bulletin board that the public is likely to see,
or put the notice in a periodical with a large circulation in the area.
• Unless otherwise agreed to in writing, a principal does not have knowledge
or notice of any facts known by an agent or subagent of the principal that are
not actually known by the principal. The same goes for any knowledge or
notice of any facts known by a subagent that are not actually known by the
licensee. This does not in any way limit the knowledge imputed to a real
estate broker of any facts known by an associate real estate broker or real
estate salesperson licensed to such broker.
Test your Knowledge!
An agency that is created because the agent’s actions can
insinuate their intentions create such a relationship is an:
A. Expressed agency
B. Implied agency
C. Agency by estoppel
D. Agency ratification
(Answer by clicking in the feedback panel)
Details of the Types of
Agency
• Here is a quick look at all the various types of agency that
may occur in real estate. Then we will look at each in detail
on the following slides.
• Single Agency
• Seller Agency
• Buyer Agency
• Dual Agency
• Sub-Agency
• Intermediary
• General Agency
Single Agency
Single Agency: In the arrangement you work for only one
party – take your pick. If you are the agent for the seller,
you represent only that person. You then work with
buyers, or their agents. Or, obviously, you may decide to
represent a buyer and proceed in the best interests.
Seller Agency
Seller Agency: Seller agency has traditionally been the
most common type of agency. The agent proclaims
allegiance to the seller and works on that person’s behalf.
Such agents are free to work with buyers, as long as the
buyer understands whom the broker represents.
Buyer Agency
Buyer Agency: If a single agency broker represents a
buyer in a single transaction, the broker is an agent for the
buyer at that time. However, there are some brokers who
represent only buyers and are called buyer’s brokers.
To avoid conflicts of interest it is important that proper
disclosure of the broker’s role be made clear.
Dual Agency
Dual Agency: It is possible, in some states for the broker to
represent both the buyer and the seller. The broker then
must pursue the fiduciary interest of both parties.
This is possible under the law in some states if both
parties are made aware of the relationship and the agent
obtains a declaration of “informed consent” from both
parties.
Dual agency is a situation fraught with peril and generally
should be avoided.
Designated Agency
Designated Agency: Similar to dual agency, a designated
agency is only legal in certain states. Many states have
adopted this practice as a way to allow a single firm to
handle a transaction in-house and avoid breaking the laws
against dual agencies. Essentially, the firm appoints two
separate agents to be “designated” to two separate clients:
the seller and the buyer.
Sub-Agency
Sub-Agency: Listing agents routinely employ other agents
to help sell the property, and the commission is shared.
Subagents are agents of the agents and are bound by the
same fiduciary duties. Likewise, listing agents are
responsible for the actions of their subagents.
Like any other agency relationship, the type of agency will
depend on how it’s created. It must occur with the consent
of both parties, either expressed or implied.
General Agency
General Agency: A general agent’s duties can vary
depending on the wishes of the principal. Usually a general
agent is employed to carry out all matters related to a
certain business.
Test your Knowledge!
An agency that is created because the agent’s actions can
insinuate their intentions to create such a relationship is an:
A. Expressed agency
B. Implied agency
C. Agency by estoppel
D. Agency ratification
(Answer by clicking in the feedback panel)
Termination of Agency
Expiration: Expiration of the agreement is a common means of
termination. Most states require a time certain on listing agreements.
It is also the case on most agreements to represent a buyer. At the
end of the period, the principal’s liability for the actions of the agent
expires, along with most obligations of the agent. The fiduciary
obligations of the agent end, but certain aspects of confidentiality
may continue. If you, as the listing agent, are privy to private
information such as the lowest price a seller would accept, you could
not take advantage of that if you brought a buyer around later on.
Completion: Completion of the goal of the agreement could also end
the relationship. Once you sell the listing, close it, and get your
commission, the agency will expire.
Termination of Agency
Agreement: An agency may also be dissolved by agreement of the
parties. A real estate agency relationship is a contract for services to
be performed. Perhaps the situation changes and a seller decides
he will not take a job transfer and will stay in the house. Maybe the
two parties just don’t get along or there are irreconcilable
misunderstandings or disagreements. Sometimes the best course of
action is an amicable agreement to call the whole thing off.
Abandonment: An agency may also be terminated by
abandonment. This is a unilateral decision by one of the parties. It
would be a breach of contract and may result in a suit for damages
being instituted by the other party. The classic example would be
where a seller refuses to accept a purchase offer brought by the
listing agent, who has a buyer ready, willing and able to meet all the
terms of the listing agreement. The broker may then sue for the
commission that was due.
Termination of Agency
Agency Coupled with an Interest: An exception would be an agency
coupled with an interest. This is defined by Merriam-Webster as an
agency in which the agent has an interest in the property regarding
which he or she is acting on the principal's behalf. If you are part
owner of the property, the principal may not unilaterally terminate the
listing agreement.
Performance is Impossible: An agency may be terminated when
further performance is impossible. This would result, for example,
from the death of either party. Also, it could occur if the property
were to be destroyed by fire, earthquake or other natural disaster.
Termination by Force of Law: If the purpose of the agency becomes
illegal due to the law change, the agency is terminated. Agency can
also be terminated if one of the parties involved files for bankruptcy.
Version 7.11
Buyer Agency
Buyer’s Agency
Many buyer agency relationships are similar to the ones
traditionally applied to seller representation. Instead of
“listing” a seller’s house, the agent may choose to “list” the
buyer and make arrangements with them as a client.
Buyer’s Agency
The general provisions of a buyer contract include:
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The buyer will pay a commission to the agent
The agent will assist the buyer in finding a property and
negotiating the purchase
The agreement is for finding a certain type of property
There will be a certain time period for representation
Specific duties of the agent will be identified
The buyer will agree to cooperate with the agent and be
available
The buyer will furnish financial information to the agent
The fiduciary duties of the agent will be to the buyer
Single Property
A broker may enter an agency agreement regarding one
property only. This might be employed in commercial
property cases where a seller refuses to list a property or
where the buyer does not want client status in general.
Exclusive Rights to Represent
This is analogous to an exclusive right to sell agreement
entered into with a seller. It guarantees a broker the
exclusive right to represent a buyer for a certain time
frame. A commission is due if the buyer purchases any
property from anyone
Exclusive Agency
This is similar to an exclusive agency arrangement to sell
a property. The agent will be the only agent to be
compensated if they affect a sale during the time period
specified. However, the buyer reserves the right to
purchase a property privately, without the use of any
agent.
Open Agency Agreement
Similar to an open listing agreement with a seller, this
arrangement allows the buyer to work with other agents as
well. The commission will go only to the agent who brings
about the meeting of the minds that results in the
consummation of a sale.
Duties Owed
Buyer’s agency entails very specific duties and
responsibilities.
• A buyer’s agent should be familiar with the type of contract
being used.
• The buyer’s agent should make sure that the buyer
understands the numerous deadlines that appear in most
contracts.
• It is the responsibility of the buyer’s agent to make sure
that the earnest money agreed to in the purchase contract
is collected and deposited, or delivered to the seller’s
agent for deposit.
• If deadlines, such as the original closing date are missed
and there is a verbal agreement between the parties to
extent those deadlines, get the extension in writing.
Duties Owed
• If there are blanks in the contracts that need to be filled in,
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make sure that every blank is filled in or crossed out and
initialed, dated and timed.
Obtain the signatures of all the parties on the purchase
contract.
Make sure the buyers receive a copy of everything they
have signed. Go over all the documents with the buyers
and make sure they understand each one.
Make sure the contract is complete! If there are items in
the listing contract that the buyer would like to make sure
stay with the property, specify each such item in the
purchase contract.
National Association of Exclusive
Buyer Agents
National Association of Exclusive Buyer Agents
(NAEBA) was founded in 1995, when the time had come
for someone to look out for the best interests of the real
estate buyer. Traditional REALTOR representation in
real estate transactions favored the seller, but starting in
the mid-1990s, it became the buyers' turn to level the
playing field.
Benefits to Parties
Buyer agency has benefits to both buyers and sellers. Let’s
examine first the benefits to a buyer. The buyer gets:
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Professional representation of their interests
Advice on financing and other terms and details
Access to a larger pool of listings. The buyer agent may
search all sources of listings; MLS listings, open listings, “for
sale by owner”, foreclosures, REO and trust properties.
A skilled negotiator working to get them the best deal
Someone who can give advice on specialists who may need
to be employed; such as home inspectors or persons to make
tests
Someone to guide them through the entire complicated
process
Benefits to Parties
The seller also gets benefits from a buyer being
represented by an agent. These include:
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No longer being responsible for the actions of a subagent of
the listing agent
If a buyer’s agent makes misrepresentations or fails to
discover a property defect, the buyer would most likely sue
the buyer’s agent for damages
The buyer would have depended on the advice of their own
agent and it would be difficult to prove they took unfair
advantage of the buyer, under the doctrine of vicarious
liability
The buyer should be better informed and the purchase
agreement has a better chance of becoming a firm contract
leading to a mutually agreeable passing of title
Benefits to Parties
Beyond the buyer and seller benefits, there are benefits to
the broker in a buyer agency. The broker enjoys:
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Greater client loyalty
Avoidance of any conflict of interest; the responsibilities are
clear to all sides
Greater flexibility to develop a negotiating strategy – only one
side’s interests are paramount and all efforts can go towards
that goal
Absence of liability for acts of the listing broker
Agency Agreement
When entering a relationship with a new client, an agent
must decide what type of arrangement he or she wants and
which would be suitable for a particular client and
circumstances.
The agent must discuss the details of what their
relationship will be. Disclosure and agreement should
happen early in the relationship.
Once the type of agency is defined and agreed on, the
terms should be reduced to writing.
Agency Agreement
Termination Date: There needs to be a specific term
during which both parties are bound to each other by the
agreement. The broker may want to include a clause to
protect themselves if the buyer later buys certain properties
shown during the time frame of the agreement.
Fees Structure
There are many possibilities for fee arrangements in a
buyer agency situation.
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Retainer Fees are sometimes asked for by agents. This
can help screen out buyers who are not serious in their
commitment and are just shopping around.
Seller Paid Fees are a common occurrence. Legally and
morally, it is acceptable to have the seller pay all or part
of a buyer’s broker fee.
Buyer Paid Fees make clearer who is represented by the
agent. It avoids any perception that may arise if the
buyer agent fee is paid by the seller, even indirectly.
Fees Structure
Compensation doesn’t have to consist of the traditional
commission that is based on a percentage of the sales
price. Possibilities include the following:
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Hourly Rate: This arrangement implies that the agent is
more of a consultant. The compensation will be based
on professional services rendered on a non-contingent
basis.
Percentage Fee: There is nothing to prevent the
traditional arrangement of charging a fee based on a
percentage of a sales price. A percentage fee may also
be employed in combination with an hourly rate.
Flat fee: Some buyer’s brokers prefer a flat fee
arrangement; contingent on their buyer closing title on a
property while their agreement is in effect.
Purchase Agreements
If you are working as the buyer’s agent there are
certain things that must be done differently in the
purchase agreement.
• The amount of the earnest money deposit should be as low as
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possible; to be followed by a more substantial deposit after the
terms are accepted.
If the buyer is asking for private financing from the seller, make
sure the terms are specific in the purchase agreement as to
interest rates, terms, pre-payment penalties and grace periods,
among other things.
There should be some flexibility in the closing date to
accommodate unseen circumstances that might occur
Purchase Agreements
• The seller should agree to correct any title defects, pay for any
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pest exterminations necessary and pay for any major repairs
required.
The buyer’s offer should be contingent upon professional
inspections as required or deemed necessary and they should
be able to cancel the purchase agreement in the event of
negative results.
Any contingency agreements should be written as to give the
buyer sufficient time to perform. If the purchase is contingent on
obtaining a mortgage, allow ample time for the processing and
appraisal processes.
Version 7.11
Agency Disclosure and
Current Trends
Seller Disclosure
The listing broker should disclose to the seller at the time of
obtaining the listing such things as:
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Will it be listed in MLS?
Will the listing be shared privately with other agents?
Will other brokers become sub-agents of the listing
agent?
Will the listing broker be sharing fees with sub-agents or
buyer’s agents?
Buyer Disclosure
A potential buyer’s broker should disclose certain items to a
buyer, as soon as is practical.
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The broker should discuss all possible agency
relationships and explain the implications of each. Then
the agent must confirm the buyer understands the
implications of any decision they make.
Once an agreement is reached it should be immediately
reduced to writing.
Disclosure Forms
Each state has its own format for disclosure; many have
pre-approved forms that must be used to provide proper
disclosure.
Keep in mind that disclosure forms are NOT brokerage
agreements and are not binding contracts. The disclosure
form simply offers proof that the licensee made the
customer aware of their options in order for the customer to
make an informed decision as to whether or not he/she
would become a client.
Choice of Office Agency
You have choices to make as to how your office will
operate under the various agency options.
Choice of Office Agency
•Seller Agency Only: You may choose to stick with the traditional method of
representing only sellers.
•Buyer Agency Only: You don’t have to service listings at all, hold open
houses, and run around with For Sale signs. However, one problem that could
arise would be when you sold a buyer a house and then he needs to list the
old house. You would be constrained from taking the listing and would have to
let some one else handle it.
•Single Agency:
Single agency firms are free to represent sellers and buyers
but never on the SAME transaction.
•Single/Dual Agency:
Some agencies have taken the posture that they would
concentrate on single agency but allow dual agency with full disclosure and
informed consent in those situations where another member of their firm
represents a party who wished to buy an in-house listing.
Buyer Representation
These kinds of people would be good candidates for buyer representation.
• Buying for your own account
• Helping buy for a
friend/relative/business associate
• First time homebuyers
• Investors
• Builders
•Anonymous buyers
Seller Representation
These kinds of people would be good candidates for seller representation.
• Helping sell for a
friend/relative/business associate
• Seller is a recent client
• Buyer is particularly
knowledgeable or experienced in
buying and selling
• Agent is not trained as a buyer
agent
• Buyer has an agent
Test your Knowledge!
Who is responsible for the acts of associated agents if there is a
lawsuit or other trouble?
A.
B.
C.
D.
The Agent
The Broker
Neither
Both
(Answer by clicking in the feedback panel)
Agent Supervision
The answer is both.
The agent is ultimately responsible for his or her actions,
but don’t believe that the broker will come out of the
situation completely unscathed.
Holley v. Meyer
Case Study
Holleys were seeking to purchase a home. One of the
Holleys was African American. The Holleys made an offer
to purchase a house that was listed by Triad Realty. Triad
Realty also represented the Holleys. One of Triad’s
agents, Grove Crank, had allegedly committed a
discriminatory act against the Holley couple under the Fair
Housing Act. The Holleys filed suit against the owner of
Triad Realty (David Meyer), the company itself, and also
the Agent, Grove Crank.
Holley v. Meyer
Case Study
How do you think the case turned out?
Use the public chat section to give your answer.
Holley v. Meyer
Case Study - Answer
There was never a dispute about the discrimination in this case. Grove
Crank had indeed committed a violation of the Fair Housing Act. The big
question here was about who could be considered liable. Could the
owner of the company (who was also the designated broker) be liable for
acts that he was not even aware of?
The district court dismissed charges against Mr. Meyer (the owner) and
found Mr. Crank (the agent) liable. BUT, our court system has the court
of appeals. The Holleys appealed this ruling and won. The appellate
court reversed the ruling and held that Mr. Meyer was indeed liable for
the acts of Mr. Crank because as the owner and designated broker he
had the “right to direct or control, the conduct of another in a residential
real estate transaction.”
Responsibility to Train and
Supervise
So, how do we prevent situations like the case of Holley v.
Meyer from happening to us?
Brokers have the responsibility to train and supervise their
employees. All real estate agents should be made well
aware of the laws and also should have a respect for the
ramifications of breaking these laws.
When the actions of your employees can affect your
business and livelihood, it is crucial to make sure that you
are employing only the highest quality professionals.
Employee Handbook
One of the best ways for a broker to protect himself and his company
is to have an employee manual in which the office policies and
procedures are clearly spelled out.
Some topics that an employee handbook should cover are:
• Fair Housing Summary
• Agent Websites
• REPSA
• What happens to listings when
• Agency
• Advertising
• Commission Splits
• Sexual Harassment
they leave the firm
• DNC Rules
• Escrow Management
• MLS Policy
• E & O Insurance
Independent Contractors vs.
Employees
What’s the difference?
The main distinction between an employee and an independent
contractor is the way they are paid.
Independent Contractors only receive payments when he/she
completes a sales that produces income.
Employees sign an employment contract that outlines how he or she
will be paid.
The other main distinction is for tax purposes
The IRS will only treat agents as independent contractors when they
meet all three of the following requirements:
Must be a licensed agent
A large percentage of the agent’s income is based on services
performed, rather than hours worked
A written agreement is in place between the agent and the
broker stating that the agent will be treated as an
independent contractor for tax purposes.
Commission and Fees
Each brokerage will have some type of compensation plan.
Some firms may choose a graduated payment plan, some may pay
their agents 100% of the sales commission but charge monthly fees.
The percentage of the commission that an agent receives may hinge
on two things:
•
•
Their experience
The types of splits that the competition is offering their agents
An additional thing that a brokerage will need to consider is the
services that they offer for agents.
For example: who pays for advertising, errors and omissions insurance,
transaction processing, business cards, yard signs, etc.
Procuring Cause
A broker is entitled to a commission if they can prove the sale was
made primarily by the efforts they put forth in that sale.
For example: If a broker showered a home with an open listing to a
buyer, but the buyer when directly to the owner to make the deal, the
broker is still entitled to a full commission.
Protection Clause
This clause (aka: a safety clause) entitles the broker to collect a
commission after the listing expires or is cancelled. In order for the
clause to provide protection to the broker the following must occur:
•
•
The broker must submit a list of names to the owner of all the
prospective buyers that they showed the property to.
The clause must specify a certain amount of time after the listing
expires for this clause to provide protection
For example: Agent John showed the Andersons a home in February. The
listing agreement expired on March 1. The protection clause was set for 90
days after the listing expired. The Andersons approached the sellers privately
a few days after the listing expired and offered to purchase the home minus
the commissions. The seller was eager to sell his house, so he accepted the
offer without considering the protection clause, and was surprised when
Agent John contacted him about his commission. According to their original
agency agreement, Agent John is perfectly within his rights to demand a full
commission from this sale
Protection Clause
This clause (aka: a safety clause) entitles the broker to collect a
commission after the listing expires or is cancelled. In order for the
clause to provide protection to the broker the following must occur:
•
•
The broker must submit a list of names to the owner of all the
prospective buyers that they showed the property to.
The clause must specify a certain amount of time after the listing
expires for this clause to provide protection
For example: Agent John showed the Andersons a home in February. The
listing agreement expired on March 1. The protection clause was set for 90
days after the listing expired. The Andersons approached the sellers privately
a few days after the listing expired and offered to purchase the home minus
the commissions. The seller was eager to sell his house, so he accepted the
offer without considering the protection clause, and was surprised when
Agent John contacted him about his commission. According to their original
agency agreement, Agent John is perfectly within his rights to demand a full
commission from this sale
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