Test 4: Agency; Listing Agreements

the laws of agency, or in some states, by statute.

In every state, a body of law, generally called the law of agency, defines and regulates the legal roles of this relationship. While the relationship is subject to contract law, agency law dictates how the relationship will achieve its purposes, regardless of what the listing contract states.

The relationship is independent of any compensation arrangement.

It is important to understand that the agency relationship does not require compensation or any form of consideration. Nor does compensation define an agency relationship: a party other than the principal may compensate the agent.

The defaulting party may have a financial consequence.

Involuntary termination of the relationship may create legal and financial liability for a party who defaults or cancels. For example, a client may renounce an agreement but then be held liable for the agent’s expenses or commission.

present all offers to the principal regardless of their amount.

A conventional listing agreement does not authorize an agent to obligate the client to contracts, and it does not allow the agent to conceal offers to buy, sell, or lease coming from a customer or another agent. Further, since a client relies on a broker’s representations, a broker must exercise care not to offer advice outside of his or her field of expertise.

confidentiality.

The confidentiality standard is one of the duties that extends beyond the termination of the listing: at no time in the future may the agent disclose confidential information.

comparable to that of other practitioners in the area.

The agent is hired to do a job, and is therefore expected to do it with diligence and reasonable competence. Competence is generally defined as a ‘standard of practice’ equal to the level of real estate marketing skills and knowledge of other practitioners in the area.

disclose the information to the seller.

An agent has the duty to inform the client of all material facts, reports, and rumors that might affect the client’s interests in the property transaction. This includes: the agent’s opinion of the property’s condition; information about the buyer’s motivations and financial qualifications; discussions between agent and buyer regarding the possibility of the agent’s representing the buyer in another transaction

the Andersons.

Since Gerry executed an agency agreement with the Andersons, they become the client and the Lincolns the customer, regardless of who pays the commission.

a broker who has an agency relationship with a client.

In a subagency, a broker or licensed salesperson works as the agent of a broker who is the agent of a client. Subagents might include a cooperating licensed broker, that broker’s licensed salespeople, and the listing broker’s licensed salespeople, all of whom agree to work for the listing broker on behalf of the client.

One agent represents both sides in a transaction.

Dual agency means representing both principal parties to a transaction. The agent represents both buyer and seller or tenant and owner.

disclosing material facts that affect the value of the property to both parties.

In the role of facilitator, the broker’s only fiduciary duties and standards of conduct are those of accounting; skill, care, and diligence; honesty and fair dealing; and disclosure to both parties of all material facts in residential sale transactions affecting the property’s value. Some states do not allow for this form of relationship in a real estate transaction

The agent is showing the client’s property to a prospective buyer.

Agency disclosure must occur upon ‘substantive contact’ between the listing agent and a customer. Examples of substantive contact include: showing the prospect a property; eliciting confidential information from a prospect regarding needs, motivation, or financial qualification; and executing a contractual offer to sell or lease.

trust, confidence, and good faith.

The essence of the agency relationship is trust, confidence, and mutual good faith. The principal trusts the agent to exercise the utmost skill and care in fulfilling the authorized activity, and to promote the principal’s best interests. The agent undertakes to strive in good faith to achieve the desired objective, and to fulfill the fiduciary duties.

general.

In a general agency, the principal delegates to the agent ongoing tasks and duties within a particular business or enterprise. Such delegation may include the authority to enter into contracts.

special.

Under a special agency agreement, the principal delegates authority to conduct a specific activity, after which the agency relationship terminates. In most cases, the special agent may not bind the principal to a contract. Real estate brokerage is commonly based on a special agency.

a party creates an agency relationship outside of an express agreement.

An agency relationship can arise by implication, intentionally or unintentionally. Implication means that the parties act as if there were an agreement. For example, if an agent promises a buyer to do everything possible to find a property at the lowest possible price, and the buyer accepts the proposition, there may be an implied agency relationship even though there is no specific agreement.

Condemnation of the property

An agency relationship may terminate contrary to the wishes of the parties by reason of: death or incapacity of either party; abandonment by the agent; condemnation or destruction of the property; renunciation; breach; bankruptcy; or revocation of the agent’s license.

The agent has violated the duty of confidentiality.

An agent may not disclose any information that would harm the client’s interests or bargaining position, or anything else the client wishes to keep secret. The confidentiality standard is one of the duties that extends beyond the termination of the listing: at no time in the future may the agent disclose confidential information.

the agent has not violated fiduciary duty.

Since it is illegal to refuse to show buyers the property based on where the buyers live, the agent has not violated fiduciary duty. The duty of obedience only applies to legal activities.

inform the seller.

An agent has the duty to inform the client of all material facts, reports, and rumors that might affect the client’s interests in the property transaction.

prior to completing a listing agreement.

An agent who intends to represent a seller or owner must disclose the import of the proposed agency relationship in writing before the listing agreement is executed.

Whenever substantive communication is made beyond casual conversation.

A listing agent must disclose in writing to a buyer or tenant that the agent represents the owner in the transaction. This disclosure must occur before or at the first ‘substantive contact’ with the customer prospect. In some states, buyer representatives must disclose the agency relationship to sellers or their agents upon initial contact.

upon initial contact.

A buyer agent must disclose the agency relationship to the seller or seller’s agent on first contact. Substantive contact is assumed to occur immediately in this circumstance.

may not represent one party’s interests to the detriment of the other.

A dual agent’s first duty is to disclose the agency relationship to both principal parties or to withdraw from one side of the duality. After disclosing, the agent must obtain the written consent of both parties. If both parties accept the dual agency, the agent owes all the fiduciary duties to both parties except full disclosure, undivided loyalty, and exclusive representation of one principal’s interests.

practicing law without a license.

An agent should not act or speak outside the agent’s area of expertise. A customer may rely on anything an agent says, and the agent will be held accountable. For example, an agent represents that a property will appreciate. The buyer interprets this as expert investment advice and buys the property. If the property does not appreciate, the buyer may hold the agent liable.

Fiduciary and contractual obligations with the client.

A listing agreement establishes an agency relationship between agent and client that commits the agent to the full complement of fiduciary duties to the client in fulfilling the agreement.

market, sell and show the property.

Special agency limits the scope of the broker’s authority to specific activities, generally those which generate customers and catalyze the transaction. A special agency agreement usually does not authorize a broker to obligate the client to a contract as a principal party. Normally, principals do not delegate the authority to negotiate price to an agent in a residential transaction.

An implied agency may have been created, with obligations to perform for both seller and agent.

Clients and agents may also create an implied agency listing based on substantive actions rather than on an express agreement. For example, if a seller allows a broker to undertake certain activities toward effecting a transaction without a specific authorization, but with full knowledge and consent, an implied agency may have been created.

The agent cannot assign the listing agreement.

Since a listing agreement is a personal service contract, it is not assignable. In particular, a broker cannot assign a listing to another broker.

exclusive right to sell.

The exclusive right to sell listing, or ‘exclusive,’ gives the agent the most control over the property and the greatest likelihood of being compensated for his or her marketing efforts.

A listing that is entered in a multiple listing service to enable cooperation with member brokers.

Though not a distinct type of listing agreement, multiple listing is a significant feature of brokerage practice. Multiple listing is an authorization to enter a listing in a multiple listing service.

The customer must be legally competent to undertake the transaction.

Effecting a completed transaction means finding a customer who is not only ready, willing, and able, but one who makes an acceptable offer. A ready, willing, and able customer is one who is: amenable to the terms of the transaction (ready and willing), and is financially capable of paying the price and legally capable of completing the transaction (able).

obtain and distribute compensation.

In the normal course of business, a listing broker delegates marketing responsibilities to salespeople. A salesperson may not, however, seek compensation directly from a client. Only the broker can obtain and disburse the compensation.

Perry, since he found the customer.

The two principal determinants of procuring cause are being first to find the customer, and being the one who induces the customer to complete the transaction.

It may be terminated against the agent’s will.

A listing may terminate on grounds of: performance; infeasibility; mutual agreement; revocation; abandonment; breach; lapse of time; invalidity of the contract; incapacitation of either party; destruction of the property; or, in this case; involuntary title transfer.

Sue the broker for money damages.

If the broker cancels the listing or otherwise defaults, the client may sue the broker for money damages.

exclusive agency agreement.

An exclusive agency listing authorizes a single broker to sell the property and earn a commission, but leaves the owner the right to sell the property without the broker’s assistance, in which case no commission is owed.

open listing.

An open listing is a non-exclusive authorization to sell or lease a property. The owner may offer such agreements to any number of brokers in the marketplace. With an open listing, the broker who is the first to perform under the terms of the listing is the sole party entitled to a commission.

net listing.

A net listing is one in which an owner sets a minimum acceptable amount to be received from the transaction and allows the broker to have any amount received in excess as a commission, assuming the broker has earned a commission according to the other terms of the agreement.

the client.

Generally, buyer and tenant representation agreements are subject to the same laws and regulations as those applying to owner listings. The only difference is the client and his or her transaction expectations.

To list the owner’s property in a multiple listing service.

A multiple listing is not a distinct listing contract but rather a provision in an exclusive listing authorizing the broker to place the listing into a multiple listing service. A multiple listing service is an organization of member brokers who agree to cooperate in the sale of properties listed by other brokers in exchange for a share of the broker’s resulting commission.

The designated agency agreement allows a broker to select a salesperson and associate brokers to act as the
client’s agent. A designated agency agreement must contain the name of all associate brokers who are
authorized to act as supervisory brokers.