©2011 Cengage Learning
California Real Estate
Principles
Chapter 4
Real Estate Agency
©2011 Cengage Learning
Chapter 4
1.
2.
3.
4.
5.
6.
Define agency and list the 3 ways an agency may
be created.
Discuss the fiduciary relationship that exists
between a principal and a licensed real estate
agent.
Explain the difference between a single agency and
a dual agency.
List and give examples of real estate violations.
Describe the agency differences between
salespersons and brokers.
List and give examples of six ways in which real
estate agencies are terminated.
©2011 Cengage Learning
TYPES OF AGENTS
UNIVERSAL
GENERAL
SPECIAL
 Examples:
 UNIVERSAL – Court-appointed Guardian
 GENERAL – Business Manager (Recorded Power of
Attorney)
 SPECIAL – Real Estate Broker (appointed by principal to
negotiate or conduct business with other parties on behalf of
the principal)
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Parties to the
AGENCY LISTING Contract
PRINCIPAL (Seller – property owner)
appoints
AGENT (Licensed real estate Broker)
to find
THIRD PARTY (Buyer)
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Parties to the AGENCY BUYERBROKER Contract
PRINCIPAL (Buyer)
appoints
AGENT (Licensed real estate broker)
to find
THIRD PARTY (Seller – property owner)
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CREATION OF AGENCY
Agency = Authority
•BY AGREEMENT
(Actual authority)
-Orally
-Written – Express Agency
-Mutual Actions
ARE
•BY RATIFICATION (Implied authority)
-OK an unauthorized agents action.
-Principal accepts the acts of the agent.
-Ostensible or Implied Agency.
•BY Estoppel (Relied Authority)
-Allow an innocent party to believe that you are their
agent and rely o that belief.
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AGENCY REQUIREMENTS





Capacity of the parties
Lawful objective
Offer and Acceptance
Consideration
Written Compensation Agreement
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Multiple Listing Service
(M L S)
•Pool of licensees sharing listings
•Maximizes market exposure for owners
•Association of Realtors affiliation
Most Association of Realtors (AOR) have
Member status
Affiliate status
Seller pays listing broker who pays any cooperating broker
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Type of Agency
•Single Agency (One, not both)
-Broker for the seller
-Broker for the buyer
•Dual Agency (Both)
-Broker for BOTH seller and
buyer
3 steps required to establish Agency
Relationship (DEC):
D isclosure
E lection
C onfirmation (written)
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DEC
AGENCY
VIOLATIONS
1.
Trust Fund Violations
-Example: Agent fails to use proper Accounting Procedures
2.
Misrepresentation
-Incorrect statement
-Withheld information
3.
False Promises
-False statement about future events
4.
Divided Agency
-Receiving funds from both buyer and seller without disclosing the facts
to the parties
5.
Commingling
-Mixing one client’s fund with another client’s funds
-Mixing client funds with the funds of the agent
©2011 Cengage Learning
AGENCY VIOLATIONS
6.
Conversion
-Using client funds for your own personal use
7.
Definite termination date
-Required on all “exclusive” real estate contracts
8.
Secret Profit
-Undisclosed profit without permission of the parties
©2011 Cengage Learning
Problem Areas




False advertising
Dishonest dealing
Misuse of trade name
Trust Fund Handling
 Broker must keep record of all client funds
 Broker may have up to $200 to cover fees
 Broker just handle client funds by:
 Give to the proper party (principal)
 Deposit into neutral escrow account
 Put deposit into trust fund account
 Failure to handle trust funds correctly:
 Commingling
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DRE Recovery Fund
 Finance by license fees
 Reimburses public for uncollectable
judgments against licensees
 Licensee must pay fund back before doing
business again
 Fees collected and administered by the
California Department of Real Estate
 $50,000 find per individual; $250,000 for multiple claims
©2011 Cengage Learning
BROKER RESPONSIBILITY
Acts of the licensees under them
Obey principal’s lawful instructions
Use due diligence to find a buyer or property
Exercise reasonable care and skill
Have a written contract and agency relationship
with each principal
6.
No secret profit. Honest and fair dealing
7.
Account for all funds of the client
8.
Have written contract with each licensee
9.
Discloses all funds, commissions and fees
10. Disclose agency agreement
11. Make diligent inspect and disclose
12. Reasonable skill and care. Good faith
1.
2.
3.
4.
5.
©2011 Cengage Learning
DUTIES OF EACH AGENT
 TO THE PRINCIPAL (Fiduciary relationship)
-Disclose Material Facts
-Disclosure of agency relationship
-Loyalty, confidentiality, full disclosure
-Accountability
-Competent, professional care
• TO THIRD PARTIES
-Disclose Material Facts
-No Negligence
-Make ONLY Correct Representations
©2011 Cengage Learning
OFFICE STAFF
OFFICE STAFF
EMPLOYER &
EMPLOYEE
•Broker withholds Social
•Security taxes
•Broker controls activities
•May receive employee
benefits
SALESPERSON
INDEPENDENT
CONTRACTOR
•Pays own taxes & Social Sec.
•Control over their own activities
•No employee benefits
•Broker liable to principals &
•3rd parties for actions of agents
REAL ESTATE SALESPERSON
• Usually and independent contractor for tax purposes
• Always an employee under the real estate law by the
Commissioner
©2011 Cengage Learning
TERMINATING AGENCY
• By Acts of the Parties
- Fulfillment/completion of the
purpose
- Term Expires
- Mutual agreement or consent
of the principal and agent
- Unilateral Action
(Revoke, withdrawal,
renounce, cancellation)
• By Law
- Death of Either Party
- Destruction of Property
- Court Action
©2011 Cengage Learning
DIED IN
ESCROW
Review Quiz Chapter Four
1.
With the permission of the seller, Broker A submits
a listing to MLS inviting cooperating brokers to help
find a buyer. This could be an offer of:
a. Dual agency
b. General agency
c. Subagency
d. Power of agency
©2011 Cengage Learning
Review Quiz Chapter Four
2.
A broker has an agency agreement to represent
just the buyer. This is an example of a:
a. Dual agency
b. Single agency
c. In-house agency
d. Listing agency
©2011 Cengage Learning
Review Quiz Chapter Four
3. Which of the following is not correct?
a. All real estate salespersons must have written
employment contracts with their brokers
b. Real estate salespersons are able to contract directly
in their own name as an agent with the seller
c. The recovery fund may be used to reimburse
qualified principals and buyers for damages suffered
because of certain inappropriate acts by real estate
licensees
d. Most real estate agency agreements are between
sellers and brokers, not buyers and brokers
©2011 Cengage Learning
Review Quiz Chapter Four
4.
The Commissioner’s Regulations applies to all
California:
a. REALTORS®
b. Realtist
c. Real estate salespersons
d. All of the above
©2011 Cengage Learning
Review Quiz Chapter Four
5. A broker receives a deposit from a buyer with no
instructions to hold the check uncashed pending the
seller’s acceptance of the offer. After the offer is
accepted, the broker decides to put the check in a
safe in the office for security purposes until the
broker can get to the bank next week. The broker is:
a. Guilty of conversion
b. Innocent of any wrong doing
c. Guilty of commingling
d. Required to place the deposit into a trust fund
©2011 Cengage Learning
Review Quiz Chapter Four
6.
A real estate broker, in order to entice a person to
buy, states that the property conforms to all building
codes. The agent knows a room was added without
a building permit. The agent is guilty of:
a. Misrepresentation
b. Acting in a legal manner
c. False promise
d. Ostensible promise
©2011 Cengage Learning
Review Quiz Chapter Four
7. According to the real estate law, for supervising
purposes, the relationship between a salesperson
and a broker is:
a. Fiduciary
b. Independent contractor
c. Employer-employee
d. ostensible
©2011 Cengage Learning
Review Quiz Chapter Four
8.
Receiving a commission from both the buyer and
seller without full disclosure and approval is
called:
a. Dual agency
b. Single agency
c. Divided agency
d. Implied agency
9. Real estate commissions are:
a. Established by the California Association of
Realtors
b. Limited per the Commissioner’s Code of Ethics
c. Determined by local Boards of Realtors
d. Negotiable
©2011 Cengage Learning
Answers: Review Quiz- Chapter 4:
Real Estate Agency
1. C
6. A
2. B
7. C
3. B
8. C
4. D
9. D
5. C
©2011 Cengage Learning