IA Real Estate Law & Agency
Real Estate Law
“Under all is the land.” The opening statement in the Preamble of the National
Association of REALTORS® Code of Ethics and Standards of Practice is at
once both simple and profound. Real estate licensees touch lives and businesses
every day, so it is incumbent for licensees to be aware of common law, common assumptions, and current law in Iowa.
Objectives
At the end of this segment, you will be able to:
 Differentiate between real and personal property
 List and discuss government powers and their implications to private ownership
 Describe various encumbrances and their effects on the owners’
bundle of rights
 Distinguish between freehold and nonfreehold estates
 List and describe various forms of ownership
 Summarize the closing process in Iowa
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IA Real Estate Law & Agency
Real Property
Real property is much more than just physical space, although that is important.
It also includes the man-made improvements and also rights and privileges,
commonly called the bundle of rights.
Physical Characteristics
Land is indestructible, immoveable, and unique. As a result, since land is indestructible, it can never be insured. Because its location is permanently fixed,
all land records are maintained in the county where the land is located. Finally,
each parcel of land is completely different from every other parcel in the world,
if only because each address is completely different.
Economic Characteristics
Real property has value based on its scarcity, improvements, permanence of
investment, and above all, location, location, In other words, we give value to
the land depending on how much we desire it, and so forth.
Improvements
Manmade additions to the land are called improvements. Examples include
houses, sidewalks, etc. As noted, the permanence of these additions add value
to the basic value of the land. The add-ons may be considered part of the real
property or not.
Bundle of Rights
Each physical piece of property also has some rights and privileges that also
transfer with the property. Generally, these are referred to as a “bundle of
rights,” and visually, one thinks of a handful of sticks. Some sticks have been
removed by a previous owner; as an example, the property can be owned “so
long as it is not used to convey pornographic images. A stick might be removed
by local authority when it rezones the area “residential.” Also, a current owner
may give up the stick of “possession” by leasing the property to a tenant in exchange for rent.
Personal Property
Personal property is what land is not. Personal property is destructible, is
moveable, and is often mass produced, with one item scarcely distinguishable
from another.
Fixtures
By definition, fixtures are items that were once personal property but by the
way that they are affixed or used, are now considered real property. For example, often a refrigerator is perceived as personal property, even though it is
plumbed to deliver ice water and ice cubes. However, when a refrigerator is
built-in, it is considered part of the kitchen and is expected to convey.
Consumers are often confused about what is expected to remain and what is
going to be carried away by the seller. The IAR purchase agreement attempts to
delineate the items that are included as well as a space for those not included.
Trade Fixtures
Built-ins are treated completely differently in the commercial arena. A nationally-advertised store located in a mall will spend a great deal of money installing
cabinets, carpeting, etc. so that the store looks like every other store in the
chain. However, when the lease is up, the retail tenant will remove all of the
very-solidly attached items, returning the space to the landlord as vacant as it
was before the tenancy.
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IA Real Estate Law & Agency
Legal Descriptions
The boundaries of the property must be identified in an identifiable manner.
There are three general methods of describing real property:

Metes and bounds: the oldest form making use of natural markers and
monuments and always beginning and ending at the same point of beginning (POB); used primarily in the original thirteen states

Rectangular or government survey: used primarily to identify lands
gained as part of the Louisiana Purchase; making use of imaginary lines
to define townships and sections; often measured in acres

Plat of survey (lot & block): the newest form of defining boundaries;
developers draw a map, labeling each parcel; it is this map that is recorded and deeds reference the drawing
Government Powers
The government retains four basic rights, or interests, in every parcel: police
power, eminent domain, taxation, and escheat (PETE).
Police Power
Police power has nothing to do with “catching the bad guys,” and everything to
do with safeguarding the public.
Likewise, a city or county may decide to enact zoning regulations because traditionally, property values are enhanced similarly-used properties are located in
close proximity. There are no nationally-recognized zoning terms, so the following are quite broad, and very likely to differ from what is used locally. Also,
not every community has enacted any or all of the following.

Nonconforming use: The property use existed before zoning was enacted; commonly called “grandfathered in;” specific local rules decide
how it is extinguished

Planned Unit Development (PUD): A non traditional type of housing
development in which several uses are mixed; property owners must
often contribute to a nonprofit that owns and maintains common areas

Buffer zone: A land use that lessens the impact of high use to lower
use; for example, hiking trails between commercial and residential

Downzoning: changing the zoning from intense use to a lesser use; as
an example, from commercial to residential

Variance: legal permission to use the property distinctly different from
zoning rules

Building codes: city or county rules for building to safeguard the
health, safety and welfare of the general public

Certificate of occupancy: legal permission to occupy newly constructed housing; new construction can be conveyed without a certificate, but
the new owner may not occupy
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IA Real Estate Law & Agency
Eminent Domain
Eminent domain is the right of government to acquire privately held property.
The court-ordered action is called condemnation. Generally, the government,
which may be a city or a county, must demonstrate that the acquiring is for a
specific project that benefits the general public. The property owner must be
appropriately compensated and is allowed to legally challenge the taking.
Taxation
The federal government relinquished taxing private property in the 1960s, turning this right over to state and local governments.
Ad valorem taxes Governments first pass a budget to show how the taxes will
be used. Then, the total value of taxable property is divided by the amount of
money necessary to fund the budget. Taxes are assessed, usually in mills
($.001), or as a dollar amount of assessed value.
If property owners do not pay their property taxes in the prescribed time frame,
the property is sold to someone, often an investor, who does pay the taxes. The
delinquent taxpayer may redeem the property within a certain time frame by
paying court charges, including advertising costs, and interest on the payment.
Special assessments Taxes required to fund specific projects that benefit only a
few properties are called special assessments. Only the benefiting properties are
taxed to raise the money. These may be voluntary, initiated by the property
owners, or involuntary, when the authority decides to make the improvement.
Escheat
Escheat is the process by which the state acquires ownerless land. Land becomes ownerless when the owner dies intestate (without a will) with no heirs.
Encumbrances
An encumbrance is a right or interest in the property that removes a stick or two
from the bundle of rights. They may or may not be monetary. The following are
a few common encumbrances:

Liens: monetary charges against the property; may be voluntary (mortgage lien) or involuntary (judgment, taxes); may be general (against the
person, IRS liens or judgments) or specific (property taxes)

Water rights: property owner rights along water; riparian generally refers to rights along rivers and littoral along large bodies of water

Encroachments: an illegal extension of one person’s property onto another person’s property; such as tree limbs over the boundary line

Deed restrictions: privately placed land-use restrictions; not enforced
by government authority, but rather by other property owners; deed restrictions must be for legal purposes; if a conflict between a deed restriction and zoning, whichever is least restrictive usually prevails

Easements: the legal right of one property owner to use the land of another; may be granted by deed or by [prescriptive] use. An easement
appurtenant consists of one property benefiting another property, with
dominant and servient tenements. An easement in gross benefits an individual, not a property, so there is no dominant tenement, only servients. Dominant, not the servient, tenement may terminate the easement,
which may also be terminated by nonuse or abandonment. Party walls
are an example of easements.
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IA Real Estate Law & Agency
Estates
An estate is the defined by the extent of ownership. An estate that does not revert back to the grantor is called a freehold estate, and can be conveyed and
reconveyed. A leasehold estate is called a nonfreehold estate; it does revert
back to the owner.
Leasehold estates
A leasehold estate is distinguished by the fact that the estate is transferred back
at some point. There are four kinds of leasehold estates

Estate for years: specific beginning and specific end; not terminated
by death of either party or by the sale of the property

Estate from period to period: tenancy “rolls over” for the term; may
be week-to-week, month-to-month, year-to-year until either party gives
notice; not terminated by death of either party or by the sale of the
property

Estate at will: tenancy is for an indefinite period of time; little or notice required to terminate by either party; terminated by the death of either party

Estate at sufferance: tenancy was legal, but now the tenant has overstayed
The instrument creating the leasehold estate is the lease. The parties to the lease
are the owner/lessor and the tenant/lessee.
Types of Leases
Leases are distinguished by how the tenant pays rent. Here are the basic types:

Gross: tenant pays rent to the landlord who pays all expenses of the
property; be aware that the tenant may be responsible for tenant’s utilities; usually found in residential leases

Net: tenant pays rent to the owner and some or all of the expenses of
the property; typical of industrial and some commercial leases

Percentage: tenant pays rent and a percentage of gross sales; usually
found in mall rentals, retail tenancies

Ground: usually for a long period of time, say 50 years; lease is often
recorded

Sale-leaseback: a method by which the owner of the property can “pull
equity” from the property; grantor conveys to grantee who becomes the
lessor leasing the property back to the former owner

Lease purchase: some of the rent paid by the tenant is applied towards
the purchase price
Freehold estates
The highest estate recognized is called fee simple absolute. The property is
conveyed forever; it is an inheritable estate. Some properties can be conveyed
on condition that certain requirements are met, even over long periods of time.
These are called defeasible fees.
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IA Real Estate Law & Agency
Non inheritable estates
Some estates are conveyed dependent on someone’s life.

Conventional life estate: property is conveyed to the life tenant who
owns the entire bundle of rights, excluding only the right to will the
property. Whatever is left of the estate is either forwarded to the remainderman or reverts back to the original grantor.

Statutory life estates: curtesy and dower. In Iowa, regarding married
owners, this translates to “one to buy and two to sell.”

Homestead: a certain amount of the homestead is protected from certain creditors.
Forms of Ownership
Iowa recognizes several forms of ownership.
Tenancy in severalty: ownership by one person or one corporation
Co-ownership: Iowa recognizes several forms of co-ownership, but not tenancy by the entirieties:

Tenancy in common: owners may own fractional amounts, each owns
as if in severalty; if an owner dies, his or her share conveys to designated heirs, not the co-owners

Joint tenancy with right of survivorship: co-ownership in which
each owns an equal amount; upon the death of one owner, the other
owners interest increases; ownership must be specifically designated
ROS, right of survivorship, with ownership created with a unity of possession, unity of interest, unity of time, and unity of title.
Non Human Forms of Ownership
These types of ownership include the following:

Partnerships

Corporations

Limited Liability Companies (LLC)
Modern Forms of Ownership
In the last century, new forms of ownership have evolved. They include the
following:

Cooperative: A non-profit corporation owns the property which then
sells “shares” that are inseparable from the proprietary lease; what is
owned is personal property

Condominium: A form of ownership, not a style of building. Each party owns his or her air space and shares ownership of the common elements. What is owned is real property

Time shares: Parties can lease or buy the use of some portion of a facility for a certain time frame annually
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IA Real Estate Law & Agency
Transfer of Title
Property may be transferred voluntarily or involuntarily. Voluntary transfer
may be made by gift, sale, or will. Involuntary may include by descent (owner
dies intestate, and state provides the will); eminent domain; lien foreclosure,
and by adverse possession.
Types of Deeds
Most transfers in Iowa are by general warranty deeds, which promise the most.
When a property is transferred by special warranty deed, the grantor only warrants the history for the period of time that the grantor held the property. A quit
claim deed makes no promises or warranties whatsoever, only that whatever
interest the grantor has, the grantor “quits” that interest.
Deed Requirements
For an effective transfer, deeds must meet certain requirements, as follows:

In writing

Identification of grantor and grantee

Legal capability for the grantor to convey

Consideration

Granting clause

Legal description

Signature of grantor (but not the grantee)

Delivery to and acceptance by the grantee during the grantor’s lifetime
Note that a deed does not have to be recorded to be effective, although an unrecorded deed may not be effective against subsequent recorded deeds.
Evidence of Title
Abstract with Attorney’s Opinion
Generally, the grantor brings the abstract up to date, and the attorney renders an
opinion. Although title insurance is not generally an option in Iowa, knowledge
about title insurance is necessary for the national portion of the state exam.
Title Insurance
Title insurance is the only insurance that is purchased based on events that happened in the past. One payment is made on the day of closing. There are two
types of policies:

Mortgagee’s Policy: Policy is purchased to cover the amount that the
lender has in the property

Mortgagor’s Policy: For a few additional dollars, the policy covers the
owner’s financial interest, i.e., the down payment
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IA Real Estate Law & Agency
Agency
Overview
The realities for the real estate professional is that consumers detest the percentage commission rate for listing their properties, they want to pay less for a
quick sale, want rebates for assisting their agents, and will gravitate to the most
cost-effective source to obtain what they need.
Consumers are demanding TRUE representation in the real estate transaction.
Licensees need to be aware of what they can say, and what they cannot say
when working for a client and with a customer.
Unfortunately, because of unfavorable experiences from sub agency experiences in the past, when their confidential information as a buyer was most likely
passed on to the real estate agent’s client, the seller, buyers now remain leery of
trusting real estate agents and their advice. Consumers today put a high value
on tangible services, ones that bring them results: a property sold or purchased.
Objectives
At the end of this segment, you will be able to:
 Explain how agency is created
 List agency options in Iowa
 Contrast transaction brokerage to agency representation
 Describe the potential conflicts of interest arising from dual agency
 Distinguish between in-house dual agency and in-house appointed
agency
 Identify questions to which a seller’s agent may respond when
asked by a buyer/customer, and those that a buyer’s agent may respond when asked by a seller/customer
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IA Real Estate Law & Agency
Changes in the Industry
The last ten years have seen more changes in real estate representation than in
the preceding fifty years. Let’s take a look at some of these changes.
Seller Subagency
For decades, all real estate licensees represented the seller. They worked FOR
the seller and WITH the buyer. The percentage commission was extremely effective, acting as an incentive to brokers to get the best possible price for their
seller/clients. Unfortunately, buyers didn’t always know that they weren’t being
represented, many times resulting in unintended dual agency. Today, seller
subagency is extremely rare.
New Power Groups
The baby boomers, largest and wealthiest in history, have sold several homes
and are business-savvy. They are quite willing to micromanage their money,
and if that means doing it themselves, they will.
In some markets, the For Sale By Owners (FSBO) constitute 20 to 50 percent
of the market. In fact, a state regulator noticed that in Walla Walla, WA, more
than 50 percent of housing transfers are FSBO and of those, about 12 percent
have paid fees to buyer agents.
Other professionals are entering the real estate business…mortgage officers,
insurance agents, closing agents, title insurance and dot coms. New business
models allow the consumer to pick and choose services, paying only for what
they use.
Changing Roles in Real Estate
Definitely, the age of specialization has arrived. Consumers, used to seeing
medical specialists, are now demanding that their real estate agents are highly
knowledgeable, a skill that is not possible to the generalist. Additionally, many
licensees recognize that working with both sides of the transaction is fraught
with danger, and so are opting for no representation at all.
Consumers Win!
The real estate industry is one of the last services to feel the impact of the Internet. However, as consumers become more educated about the real estate process, they have higher expectations about the level of service they receive from
their real estate agent.
Quite possibly, we will see more single agency, i.e., more service to a limited
group of consumers. In order to meet these needs, real estate licensees will
build niche markets offering specific services in return for fees other than the
percentage model.
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IA Real Estate Law & Agency
Agency Basics
One party hires, the other party does the work. A real estate licensee is not obligated to work with just anyone, although he or she may not refuse to work
with someone simply because of the consumer’s race, color, religion, national
origin, sex, familial status, handicap, and in South Dakota, creed.
The party who hires is called the principal, and the party who does the work is
called the agent. Agents can become obligated to the principal even without a
written agreement, and who pays the compensation does not determine agency
relationships.
Licensees should be aware that when consumers hear the word “represent,”
they mentally expect certain duties from their agents. Licensees must educate
their consumers so that neither has unrealistic expectations.
Office Agency Policy
Designated brokers are charged with the responsibility to provide a written office policy about the agency and brokerage relationships the office and its affiliates offer to consumers. These options range from no representation, to full
representation, to limited, dual representation. For example, some activities do
not rise to the level of requiring a real estate license. Other activities require a
real estate license, but do not rise to the level of client care.
Not only must the designated broker communicate this information to his or her
affiliates, but those affiliates must be able to effectively communicate the options to the consumer. Before making a decision for the office, responsible brokers must examine each option, its pros and its cons, bearing in mind that these
policies also dictate how information is gathered and shared or not shared in the
office. This quite possibly affects the physical layout of the office.
Agency Disclosures
Iowa licensees are expected to explain their company options to the consumer
at the “first substantive contact with a seller or buyer who has not already entered into a written agreement with a broker.” The state requires that the consumer sign a disclosure form to verify that the licensee has offered the types of
agency and brokerage relationships offered by that broker. The form does not
obligate the consumer in any way, not to payment or exclusivity; it merely acts
as witness that the consumer has been provided options. No other disclosures
are required after the consumer enters into a written agency or brokerage
agreement with the broker.
Agency Relationships
Designated brokers are limited to the following relationships:

Single agent (seller/landlord agent or buyer/tenant agent)

Appointed Agent

Disclosed Dual agent

No representation
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IA Real Estate Law & Agency
No Representation (Transaction Brokerage)
Although a real estate license is required for non representation actions, none of
the permitted services can rise to the level of client care: in other words: no advice, judgment or counsel. Certain responsibilities are due the customer:

Perform terms of written agreement

Exercise reasonable skill and care

Present all offers in a timely manner

Account for all money and property received

Comply with applicable laws

Disclose any material facts known to the licensee
Material Facts
Such information can include environmental information, material defects in
the property, material defects in title, or material limitations on the client’s ability to perform. Generally, what the consumer wants or doesn’t want, actually
constitutes material facts, i.e., those facts, if known by the consumer, would
cause the consumer to make or not make an offer on the property.
It is not always easy to distinguish between “material” and “confidential.” The
transaction broker must be extremely cautious to remain factual and to not offer
judgment or advice.
Prohibited Activities
Transaction brokers are specifically prohibited, unless permitted by written
consent, from disclosing that buyers are willing to pay more, or that the sellers
will accept less, any motivating decision-making factors, or any other “confidential” information known by the licensee about the consumers. Additionally,
they are not responsible for inspections, verifying the information received
from other parties, or for verifying the buyer or tenant’s financial conditions.
Permitted Activities
Many activities are considered “informative acts” and can be performed by the
broker to consumers who do not wish to enter into an agency relationship.
Some of these duties can include:

Respond to phone inquiries

Attending an open house and fielding questions

Identify and show property

Provide real estate information and statistics

Describe a property or property condition in response to consumer’s
inquiry

Provide preprinted forms

Act as a scribe

Accompany third party professionals

Referring a person to another broker or service provider

Identify schools, shopping, places of worship, etc.

Provide a one-time showing of one property only to a potential buyer or
lessee
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IA Real Estate Law & Agency
Discussion
Fred and Sally Fishers were stationed at a Offutt Air Force Base for a couple of
years. They are now approaching retirement, and have decided to settle in Iowa
because of the hunting and fishing opportunities. They have been surfing the
Internet for the last six months, and they have identified a parcel of land, with a
cabin, that seems perfect for them, at least based on the Internet description.
They’ve emailed the listing agent, Susan Listor, and are now planning a trip to
the area for the following weekend.
At this point, who does the real estate office and the salesperson, Susan, represent?
What disclosures, if any, should Susan, the listing agent, make when the buyers
arrive to look at the property?
If the buyers do not want to enter into an agency agreement, can Susan show
the property and get both sides of the commission?
The Fishers are very excited after looking at the property and prepare to make
an offer. They ask Susan, “Is this a fair price for the property?”
How should Susan answer this question?
Is there any way for the out-of-area buyers to know if the asking price is a fair
price?
Single Agency
Single agency is the highest level of service. Whether the licensee is representing the seller or the buyer, the licensee is charged with seeking the best price
and terms that are acceptable to the client. The licensee acting as “agent” is obligated to ALL of the preceding acts and additionally to the following:
Promote the interest of the client with the utmost good faith, loyalty, and fidelity
In other words, to put the client’s interest first, the agent will disclose ALL
known information, present any and all offers, disclose financial interests, disclose all fees, and also disclose any personal interest.
However, since the way that we market property is significantly different from
how we locate property, the duties are somewhat different, depending on
whether the client is buyer or seller. An agent needs to know what the client
needs to know BEFORE the client needs to know.
Duties to Customers (Third Parties)
The third party is the non-represented party in the transaction: if representing
the seller, the third party is the unrepresented buyer and if representing the buyer, the third party is the unrepresented seller. The agent has no duty to the other
consumer/customer other than honesty, reasonable skill and care, accounting,
and the duty to disclose material defects. Many authorities, though, expect that
the unrepresented party has the right to be “Mirandized:” “anything you say
will be conveyed to the represented party and can and will be used against
you.”
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IA Real Estate Law & Agency
Sellers’ Agency
The listing agent is responsible for promoting the seller’s interests above anyone else’s, including those of the listing agent. The listing agent should try to
obtain the listing price for the seller, with as few contingencies and conditions.
The agent is not obligated to disclose any sex offender information. Even in
putting the seller’s interests first, the listing agent still has the right to list competing properties and to show competing properties to buyers.
Working with buyer customers Listing agents should avoid lowering the level
of service to buyers who are interested in the listed property. Listing agents can
respond to questions from a buyer/customer and they can work both sides of the
transaction and they can collect both sides of the commission. Here is a list of
questions a listing agent CAN answer without rising to client level responses:

What is the list price of this property?

May I/we have a feature sheet and disclosure form?

In which school district is this home? Is school transportation available?

What are the current taxes and utilities budget billing?

What terms is the seller offering?

Are there any association dues or additional fees?

What items/appliances stay with the property?

Are there any items that the seller has reserved?

What is the lot size and are there any encroachments?

What are some of the recent updates to the property?

Currently, are there any pending offers/subject to sale?

Is there any kind of warranty available?

Has the seller indicated a possession date?

Has the seller indicated any available concessions for the buyer?

What is the current zoning of the property?

Has the seller provided any copies of any inspections, such as leadbased paint, radon, termites, etc.
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IA Real Estate Law & Agency
Buyers’ Agency
The buyers’ agent is responsible for promoting the buyers’ interests above anyone else’s. Thus, the buyers’ agent who approaches a For Sale By Owner
(FSBO) owes only minimal duties to this seller, and highest duties to the buyer
who hired the agent. This agent is not obligated to discover or to disclose any
information about sex offenders, but is obligated to disclose any known information. However, even when in putting the buyers’ interests first, the buyers’
agent still has the right to show the same property to competing buyers.
Working with seller customers The following are questions that a buyer agent
can ask and services that a buyer’s agent can perform when working with a
seller/customer (For Sale by Owner) without rising to client level services.

Lead-base paint disclosure

State mandated seller property disclosure form

Other disclosures such as radon, asbestos, environmental concerns

Age of the home, of heating and air conditioning, roof, etc.

Copy of survey, if any encroachments

Current zoning; school district; deed restrictions (CC&Rs); homeowner
associations

Any appliances to stay

Any terms or conditions or concessions available to the buyer

Copies of recent repairs; especially water-related problems

Required building permits?
Discussion: Previous Client
In 2005, Sanjay listed a property owned by Richard Steen, a very difficult seller, who over-priced the property. Sanjay even showed him two other properties
that showed better than his and were listed for less money. Richard did not have
to sell at that time; he could afford to wait. Of course, the other two properties
sold, and his didn’t. He blamed Sanjay and wouldn’t relist with him and instead
listed with another company. Now, however, he has to sell within the next three
months or he will face some financial penalties.
Just last week, Sanjay picked up an investor buyer who has asked him to locate
properties that he can buy at the lowest possible price. He has even signed an
exclusive buyer representation agreement with Sanjay to protect Sanjay’s
commission on any properties that the investor buys in the next nine months.
Is there anything that Sanjay should discuss with the buyer client about office
listings?
Is Richard Steen’s property generally meets the investor’s specifications,
should Sanjay show it to the investor?
What, if anything, should Sanjay tell his investor client about his previous relationship with Richard Steen?
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Discussion: Buyer Agent
The broker only permitted Butch, a part time agent, to answer phone calls after
5 p.m., when very few people were calling in anyway. One late afternoon,
Butch answered the call to hear: “I am calling from Portland, OR, and have
called more than a dozen agents in your town today. Everyone tells me that the
property that I want isn’t on the market.” After listening to the caller detail his
requirements, Butch realized that the other agents in town were absolutely correct: there was nothing like that on the market.
Importance of Brokerage Agreements
The brokerage agreement sets forth exclusivity and payment obligation. Very
few licensees would think of marketing a property after only obtaining a signature on a listing agreement, but many buyers’ agents show properties with no
brokerage agreement.
Listing agreement
The listing agreement spells out the listing agent’s responsibility for marketing
the property, for how long, and under what conditions the commission is
earned. The type of listing most favored by the real estate industry is the exclusive right to sell. If the property is sold within a certain period of time, the seller is obligated to pay a commission. A less-favored, but still used listing, is the
exclusive agency listing under which the seller reserves the right to procure the
buyer without being obligated to pay a commission. The least-favored is the
open listing: whichever broker brings the buyer gets the listing commission.
Buyer representation agreement
Unfortunately, many agents who are working with buyers do not enter into exclusive relationships. Most operate under open representation: whoever shows
the property to the buyer gets the commission. Some do cover themselves by
gaining an exclusive agency commitment, i.e., the buyers’ agent receives a fee
from the listing agent’s split. Only a committed few earn both the respect and
the trust so that the buyers commit to protect the agent’s commission under the
exclusive right to represent.
Dual Agency
Under traditional brokerage practices, when an affiliate licensee takes a listing,
every affiliate in the office represents that seller. Similarly, when one affiliate
represents the buyer, everyone in the office represents the buyer. Therefore, in
the same office, we have one broker, two clients and no customers.
However, the designated broker has several alternatives. Designated brokers
must decide which agency alternatives their office will offer to consumers:

Dual agency

Appointed agent of client to exclusion of other licensees
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Dual Agency
Inherent potential conflicts of interest arise when a company represents both the
buyer and the seller. This happens in one of two ways: the buyer and seller are
represented by the same licensee OR the buyer and seller are working with two
different licensees in the same broker’s office.
In both situations, the consumers must understand what they are giving up in
order to give their “informed consent.” In-house transactions must be limited in
scope when the office is small and information is freely shared among the affiliates.
Also, while there are indeed similarities between duties of a transaction broker
and those of a dual agent, the dual agent IS charged with additional duties:

Present all offers even if the client is already party to another agreement

Advise the client to obtain expert advice about material matters that are
beyond the expertise of the licensee.
The dual agent pledge:
I pledge allegiance to the buyers and sellers by the mutual informed
consent of both parties. I will faithfully provide the duties of confidentiality and accounting in full measure.
I will further provide limited obedience to their instructions because I
have limited loyalty to their causes. I must necessarily offer limited
disclosure but I will disclose information that is required by law.
Appointed Agency
An alternative to the in-house, dual agency, potential conflict-of-interest is
available. Called appointed agency, the law permits the designated broker to
appoint one affiliate licensee to represent the seller, to the exclusion of all other
licensees in the office and another licensee to represent the seller. When making
this appointment, the designated broker is not considered a dual agent. In any
case, the affiliate representing both parties is still going to have to act as a dual
agent.)
The success of this program depends primarily on protecting confidential information. The designated broker should promulgate policies that guard against
confidential information becoming public, knowledge to everyone, including
the agent representing the other party. While not an option for some very [physically] small offices, it does offer an excellent opportunity to afford consumers
single agency even with in-house transactions.
Discussion: Dual Agent
Janice listed the Bobson’s home, gaining their consent to potential dual agency.
After entering the information into the local Multiple Listing Service (MLS),
she contacted several of her buyer clients and showed the property to them. In
the meantime, several other agents, from other offices, also showed the property. Just as Janice was leaving her office to present her buyers’ offer to the
sellers, she received several phone calls indicating that two more offers were
coming in. She discloses this to the seller. Unfortunately for Janice, her buyers’
offer was the lowest of the three.
As a dual agent, what obligation, if any, does Janice have to her own buyers to
inform them of the other offers, and if so, how much information can she provide?
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Terminating Agency Relationships
Most often, agency relationships, like contracts, are terminated by performance,
that is the agent accomplishes the task for which he or she was hired. Relationships may be terminated by death, incapacity of either party, bankruptcy, etc.
After the transaction closes, or the relationship is terminated for any reason,
certain duties remain. The licensee is obligated to provide accounting for any
property or money received during the transaction. Also, any confidential information must remain confidential forever. So, a licensee may be placed in the
situation of informing a new client that the licensee may have gained
knowledge that could be useful to the new client, but since it was gained in confidence, it must remain in confidence.
Discussion: Loyalties
Manny, Moe, and Joe were like the three musketeers all through high school:
all for one and one for all was their motto. But, after high school, they went
their separate ways. Manny and Moe stayed back home, but Joe joined the military. Moe and Joe remained in touch, and Joe actually visited Moe in his San
Diego home.
Manny drifted away from Moe and Joe. In fact, just last week, Manny did not
list his home with Moe, but with another agent in the office. Moe was a bit annoyed but was determined that he would be the agent to sell Manny’s home.
Wouldn’t you know it? This morning, Moe received an email from Joe. Joe has
just sold his San Diego home for HUGE gains and “we don’t have to pay any
taxes on the gains” since Joe and his wife have lived there for more than 15
years. Joe has CASH and he and his wife want to retire to the good “ol’
hometown.” While surfing the Internet, Joe saw Manny’s home for sale. He
remembers this home as one of the finest in town, and the asking price is certainly reasonable, especially compared to San Diego prices. Joe and his wife
will be coming back in about 10 days, and they are pretty sure that this is the
house they want to buy.
Poor Moe! Over the years, Manny has developed a less-than-perfect reputation
for cutting deals just a little too close. That’s why Moe hadn’t been all that upset for not getting Manny’s listing…the asking price was about 25 percent
higher than Moe felt that an appraisal would bring, so anyone needing a mortgage loan would have that kind of protection. On the other hand, no appraisal is
necessary for a cash buyer.
Discuss the issues that Moe should discuss with Joe and his wife regardless of
who represents whom?
If this office is a traditional office in which an in-house transaction has to be
disclosed dual agency, what issues are off-limits for discussing with Joe and his
wife?
What are the advantages of an appointed agency office in this situation?
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Practicing Safe Agency
Real estate licensees must know the rules in order to avoid lawsuits and worse!
They should know what can be discussed, what should be discussed, and what
should NEVER be discussed.
Seller Property Disclosures
The sellers’ property disclosure forms are neither a guarantee nor a warranty.
Often, the most important information is missing, if the seller has no knowledge
of the condition. The primary value of these forms is assigning responsibility:

Seller is responsible for disclosure

Buyer is responsible for discovery
Licensees are not responsible for unknowingly passing information that later
turns out to be false or incorrect. Licensees are responsible for disclosing conditions about which they have knowledge.
The listing agent should encourage the seller to honestly and truthfully answer
all of the questions on the disclosure form. If the seller say, “Should I mention…?” the answer is “YES!”
Agents who represent buyers should work from a consistent interview form, so
that they can document that they treat each buyer the same by asking the same
questions. Buyers’ agents should raise issues that the starry-eyed buyer may not
be considering. Very early in the process, the buyer agent should ask their clients about any special concerns and discuss the importance of hiring their own
inspectors to discover any conditions about which the buyer wants to be aware.
Also, many buyers’ agents are now encouraging their buyer clients to talk to the
neighbors before making their offers.
Buyers Faulted for Non Discovery
When purchasing the $670,000 home in 2000, the buyers and seller were so
friendly that the buyers agreed to take the sellers’ family dog “as their own
treasured family pet for the rest of her natural life and to provide her original family liberal visitation as they wish.” Prior to closing, the buyers had
access to the house more than six times, noting a faint smell, but they also
relied on the home inspection provided by the seller. As they moved in, they
discovered plug-in air fresheners, cedar blocks in closets and lava racks in a
furnace vent and under a kitchen desk. Within weeks, all family members
developed persistent headaches, nosebleeds, coughs and other problems.
Then, they learned that the house had been “ozoned” four years earlier.
The buyers sued for non disclosure of mold, and the sellers contended that
buyers were negligent in not having their own inspection done. The judge
felt that the buyers had an “opportunity to detect any odor before the sale.”
At the present time, the buyers are planning to burn the home and the
$193,600 personal belongings. (Douglas County, NE District Court
1002383 as reported in the Omaha World Herald, January 25, 2004)
Home Inspections
Licensees should pass the buck when it comes to home inspections. Inspections
should be completed as early as possible in order to eliminate hassles just prior
to closing. Early completion gives the seller time to make repairs and allows the
buyer time to complete evaluation of the home’s condition. Statistically, fewer
than one percent of lawsuits result because of utilizing a third party.
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Provide all recommendations in writing. If you have no written documentation,
your words are “I told the buyer to get inspections,” and the buyer remembers,
“My agent told me that an inspection wasn’t necessary.” Put any buyer who
refuses a home inspection on notice, in writing.
Buyers should be encouraged to start the hiring process even before the buyers
start looking at properties, before they become emotionally involved. The buyer
should not only ask for references, they should call those references.
Home Warranties
A home warranty builds a bridge between consumer and consumer, leaving the
agent out of the loop if and when something goes wrong with the major systems
after purchase. Licensees should be aware of what is covered and what is not
covered in the home warranty. Licensees should also ensure that the consumer
understands that there is a deductible and that certain formalities must be observed when making a claim. Many can be renewed annually.
A buyer observed, “It just sticks in my craw to have to pay for a new water
heater after paying $300,000 for my house.” This buyer wanted a water heater,
not a lawsuit.
Phantom CMAs
A Competitive Market Analysis (CMA) assists sellers to determine a competitive asking price and buyers in making an informed, fair offer. Licensees who
neglect to do a CMA for their clients are not doing due diligence.
Licensees should educate clients about interpreting a CMA before becoming a
dual agent. As a dual agent, the licensee cannot interpret information on a
CMA without the seller’s permission. If the CMA does not support the list
price, the agent could be perceived as sharing information that may be harmful
to the seller. Decide in advance how to deal with requests for information.
“At some point, I may be showing my sellers’ listing to one of my buyer clients. I will ask both of you to consent to dual agency. At that time, now that
you know how to interpret a CMA, you may ask me to provide you with a list
of four area properties that have sold recently and four that that did not sell.
You can do your own analysis with this information to help guide you into
making a fair offer.”
Discussion: Disclosure of Fees
Both state law and NAR’s Code of Ethics impose a duty on the real estate licensee to disclose personal interest in the transaction. Licensees can have a financial stake in the transaction, either because they themselves are the seller or
buyer, or because of fees they will be receiving from the transaction. Often,
both the practices of the Multiple Listing Service (MLS) and office policies
reflect “how we did things” under seller subagency. Discuss the following situations:
1. The seller offers a bonus of $xxx to the agent who brings in an offer to
purchase. Should the licensee who represents the buyer disclose this fee
to the buyer? Why or why not? If so, at what point in the process?
2. The office policy offers a greater split to encourage in-house transactions. Should licensees disclose this fee to their buyer clients? Why or
why not? If so, at what point in the process?
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Assistants
Finally, we should discuss the growing use of assistants, individuals hired to
work closely with a particular licensee and not with other affiliated licensees in
the office. Assistants can be licensed or not, depending on their duties.
Unlicensed Assistants
Generally, an unlicensed person may perform the activities:







Deliver documents and pick up keys.


Assemble documents for closing.
Answer the telephone and forward calls.
Secure public information from courthouses, utility districts.
Provide courier services.
Place signs on the property.
Type forms for approval by licensee and supervising broker.
Write ads for approval by licensee and supervising broker, and place
classified advertising.
Handout objective, written information on a listing.
Unlicensed assistants may NOT do any of the following:


Independently show property to prospective buyers


Answer questions on title insurance, financing, or closings.

Give additional information not included in prepared written promotional material that has been distributed to the public.

Represent themselves as an agent for a real estate broker or the owner/seller of a property.


Negotiate or discuss the terms of the sale.


Act as a go-between with a seller and a buyer.

Solicit bidders for real estate sold at auction.
Solicit by telephone or in person potential sellers, purchasers, tenants or
landlords
Independently host open houses for licensees or the public, or staff
booths at home shows or fairs.
Be paid on the basis of real estate activity, such as a percentage of the
commission, or any amount based on listings, sales, etc.
Answer questions concerning properties listed with the firm, except to
confirm that the property is listed and to identify the listing broker or
salesperson.
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Discussion: Working with an Assistant
The designated broker of Top Agents in Town has decided that appointed agency works best with her very independent sales associates. Thomas is the top
listing agent. Tom wants to avoid limited agency situations, so he hires a licensed assistant, Susan, to work only with buyers. In other words, Tom represents sellers and Susan represents buyers.
Do you see any agency/representation issues in this situation? Are there any
possible conflicts of interest? What, if anything, should Tom and Susan disclose
to their respective clients?
Homework: Write Your Company Policy
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