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Chapter 21: The Principal-Broker Relationship: Agency

Created when one person delegates to another the right to act on his behalf.

General agency – the right to bind the principal to perform a particular act.

Principal = Property ownerAgent = Broker Client = Principal

AGENCY

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Written – contractual agreement Implied – custom in the industry Ostensible – conduct of the parties Ratification – agency established after the

fact Estoppel – due to principles failure to

maintain due diligence over the agent who exercises powers not granted him.

ESTABLISHING AUTHORITY

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Commission

Skills and Knowledge

Principal

Agent

AGENCY R E L AT IONSH IP

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• Care

• Obedience

• Accounting

• Loyalty

(Competence and expertise)

(Lawful instructions)

(For funds received)

(Principal’s interest first)

B R O K E R ’ S O B L I G AT I O N T O P R I N C I PA L

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COMMINGLING

When broker places money belonging to a client or customer in a personal account.

Said withoutchecking the facts

Not said and facts not checked

Said wronglyto mislead

Unsaid in orderto mislead

A Facts BrokerKnows

B Facts BrokerDoes not know

D I S C L O S U R E L I A B I L I T Y

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“As Is”Puffi ngLead-based paint

disclosure on homes built prior to 1978

Home Inspections

RED FLAGS

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The exact opposite theory from the traditional seller representation.

Here the principal or client is the buyer!

Agent owes the care of agency duties to buyer.

B U Y E R AG E N CY

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Agency relationships can be created without written agreements and consumers must be informed who the agent represents so there is a clear understanding of the agent’s role in a transaction.

Many states now require disclosure forms.

AGENCY DISCLOSURE

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Seller disclosure statements are a detailed disclosure of property defects (or lack thereof) on a form often produced by a real estate trade association.

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SELLER DISCLOSURE STATEMENT

Owner disclosure informationInterstate land disclosure statementsAntitrust laws

Price fixingBoycotting

Errors and Omission insurance

I N F O R M AT I O N

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Key Terms

Agent Boycotting Commingling Dual agency Middleman

Ostensible authority Price fixing Principal Puffing Third parties

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