Chapter 7: Real Estate Brokerage
and the Law of Agency
© Dearborn Real Estate Education, 2012
Introduction to Brokerage and Agency
• Significant changes in nature and
practice of real estate brokerage
services
• Creation of multiple listing services
• Switch from only seller subagency to
agency representation choices
• NC is still a caveat emptor state
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Law of Agency
Although the law of agency has not changed,
the application of the law continues to change:
-Who does the licensee represent?
-How will the listing firm cooperate with other
firms/agents?
NCREC strongly recommends written
company policy about agency practice
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General Agency Definitions
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Agent
Subagent
Principal
Agency
Subagency
Fiduciary
Client
Customer
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Brokerage Defined
A broker is one who is licensed to list,
lease, buy, exchange, auction,
negotiate, or sell real property for
others for compensation.
A provisional broker works on behalf
of the broker.
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Nature of the Brokerage Business
• Broker-in-charge/licensed associate
relationship
– Provisional broker performs duties in
broker’s name
– Provisional broker must be pay only
through BIC
– Independent contractor vs. employee
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Classification of Agency Relationships
• Universal Agent
• General Agent
• Special Agent
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Creation of Agency
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Listing agreement
Buyer agency contract
Dual agency contract
Property management contract
In-house brokerage employment
contract
• Implied agency (by conduct)
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Scope of Authority
• Express agreement
• Implied agreement
• Ratification
• Compensation does not
determine agency
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Termination of Agency
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Fulfillment of purpose
Expiration of terms
Mutual agreement
Breach by a party
Operation of law
Destruction or condemnation of
property
• Death or incapacity of either party
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Duties and Liabilities of Agents to
Third Parties
• Honesty and fairness
• Disclosure of material facts
• Compliance with licensing law
and NCREC rules
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Material Facts
• Facts about the property itself
• Facts relating directly to the
property
• Facts relating directly to the ability
of the agent’s principal to complete
the transaction
• Facts known to be of specific
importance to a party
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Prohibited Conduct
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Willful misrepresentation
Negligent misrepresentation
Willful omission
Negligent omission
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Stigmatized Properties
• Properties branded by society as
undesirable
• Site of criminal activity or event,
death of occupant or owner
• Not a material fact by North Carolina
law
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Sex Offender Disclosure
• By state law, presence of a sex
offender not a material fact
• Licensee may voluntarily disclose
or advise consumer to visit registry
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Liabilities and Consequences of Breach
• Disciplinary action by NCREC
• Civil action brought by injured
party
• Criminal prosecution brought by
district attorney
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Duties and Liabilities of Principals
• Duties to agent
– To act in good faith
– To pay compensation
• Duties to third parties
• Liabilities and consequences of
breach of duty
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Agency Disclosure
• Mandatory Working with Real Estate Agents
brochure given and reviewed at first
substantial contact of every sales
transaction
• Agent keeps acknowledgment panel in file
• Agency decision must be made prior to
delivery of services
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Agency Relationships
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Single agency
Buyer agency
Subagency
Dual and designated agency
– Undisclosed dual agency
– Disclosed dual agency
– Designated dual agency
• Agency in property management
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Oral Buyer Agency
• Non-exclusive buyer agency option
• Cannot restrict consumer in use of
agent or length of agreement
• Must be reduced to writing prior to
presentation of first offer
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Agency Relationships
Single agency
Broker exclusively represents
either the buyer or the seller in a
transaction
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Agency Relationships
Buyer agency
Broker exclusively represents the
buyer in a transaction
vs.
Seller subagency
Broker exclusively represents the
seller in a transaction
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Agency Relationships
Dual agency
Broker equally represents both the
buyer and the seller in the same
transaction with permission without
compromising either principal
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Agency Relationships
Undisclosed dual agency
- Violates licensing law
- Jeopardizes interests of both parties
- Can result in rescission of contract,
forfeit of commission, or lawsuit
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Agency Relationships
Disclosed dual agency
- Intentionally created
- In-house transactions only
- Informed consent of both parties,
written prior to presentation of
first offer
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Agency Relationships
Designated dual agency
- In-house transactions only
- Need written company policy
- Informed written consent of both
parties
- BIC appoints different agents to
exclusively represent different
principals
- Optional form of dual agency
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Agency Relationships
Can not be designated if:
- Agent has received confidential
info on opposite party
- Provisional broker would be
designated opposite their BIC
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Duties and Liabilities of Agents to Principal
Loyalty and confidentiality
Obedience
Accounting
Disclosure
Skill, care, and diligence
© Dearborn Real Estate Education, 2012