9/2/2019 Unit 7: Real Estate Brokerage and the Law of Agency 1 Explain the History of Brokerage • Define Common Law of Agency • Creation/Termination of Agency Relationships • Duties Owed to a Principal • Misrepresentation & Disclosure Rules • Liabilities/Consequences of Agent’s Breach of Duties 2 History of Real Estate Brokerage 1950s mid 1990s 1960s Seller Rep Agency MLS SubAgency Choice Seller Created caveat emptor state 3 1
9/2/2019 • Agency • Agent • Subagency • Subagent • Principal/Client • Customer/3 rd Party • Fiduciary Page 137 4 Transactional Broker – legally neutral 3 rd party that offers real estate services to buyers and sellers NOT AN AGENCY RELATIONSHIP Not Allowed in NC Page 137 5 Agents work: FOR the Client & WITH the Customer 6 2
9/2/2019 Duties & Liabilities of Agents to Principal: OLD CAR O bedience L oyalty D isclosure C onfidentiality A ccounting R easonable skill and care Page 138 7 Obedience • In accordance with the contract Not absolute • Lawful & ethical • Page 141 8 Loyalty • Be sensitive to possible conflicts of interest • Do not act out of self-interest 9 3
9/2/2019 Disclosure Facts that could affect principal’s decision • Any bonuses for broker Agent’s relationship to buyers • Property disclosure documents • All Offers • Identify of Prospective Purchasers • 10 Disclosure • Ability of Purchaser to Complete Transaction Any agreements broker may have • with buyer (ie property management) Buyer’s intention to resell the • property 11 Disclosure Any agreements broker may • have with buyer (ie property management) Buyer’s intention to resell the • property Failure to Disclose: Liable for Damages Three Mandatory Documents 1. Residential Property Disclosure 2. Mineral, Oil and Gas Disclosure 3. Lead Based Paint Disclosure (prior to ‘78) 12 4
9/2/2019 Confidentiality Agent shall not disclose principle’s: Financial condition • Motivation • Acceptable terms • (without permission) 13 Accounting • All funds from or for principle • Deposit immediately • NC Keep copies for 3 years • No commingling 14 Reasonable Skill and Care • Be competent at in all aspects of real estate profession. • Be diligent in performing duties 15 5
9/2/2019 Duties & Liabilities of Agents to 3rd Parties • “Customers” or “Prospects” • Honesty and Fairness • Comply with NC Real Estate License Law and NCREC rules regarding disclosure of material facts Page 141 16 Puffing: exaggerating a property’s benefits – Don’t Over Do It Fraud: Intentional misrepresentation of a material fact that might harm or take advantage of another person 17 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 18 6
9/2/2019 Specific Material Facts: • Synthetic stucco (aka EIFs: exterior insulating and finishing system) • If a property ever had leaking polybutylene pipes • If the property was ever used as a meth lab Must be disclosed forever! Page 143 19 Who needs to know Material Facts? All transactional parties Buyers and sellers Landlords and tenants Lenders Even if specific questions are not asked 20 Prohibited Conduct • Willful misrepresentation • Negligent misrepresentation • Willful omission • Negligent omission Page 143 21 7
9/2/2019 Willful Misrepresentation • Intentional • Licensee has "Actual knowledge" of a material fact, but misinforms 22 Negligent Misrepresentation • Licensee unintentionally misinforms a principal of a material fact because: he did not have actual knowledge had incorrect information or because licensee made a mistake • Broker may be guilty even if he acted in good faith • But reasonably prudent agent "should have known" 23 Willful Omission License has actual knowledge but deliberately fails to disclose the fact Page 145 24 8
9/2/2019 Negligent Omission • Licensee does NOT have actual knowledge • Does not disclose because of lack of knowledge • But reasonably prudent agent "should have known" 25 What Do You Think? WILLFUL • Misrepresentation • Omission VS NEGLIGENT • Misrepresentation • Omission 26 Stigmatized Properties • Properties branded as undesirable • Site of criminal activity, death of occupant, reputation of being haunted • Not a material fact by North Carolina law 27 9
9/2/2019 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 http://sexoffender.ncsbi.gov 28 Duties to Principal: Commission Rules • Avoid any willful or negligent misrepresentation of material facts • Avoid making false promises to the principal • Avoid undisclosed conflict of interest • Properly account for funds • Act competently in services provided 29 Duties to Principal: Commission Rules • Avoid improper conduct be honest in ALL dealings • Deliver copy of contracts within 3 days • Disclose all commissions, referral fees, kickbacks & payments from third parties 30 10
9/2/2019 Commission Disciplinary Authority • Reprimand • Censure • License Suspension • License Revocation 31 Liabilities & Consequences of Breach of Duty • Disciplinary action by NCREC • Civil action brought by injured party • Criminal prosecution brought by district attorney • Civil action for reimbursement 32 Duties & Liabilities of PRINCIPALS • Duties to agents • To act in good faith • To pay compensation • Duties to third parties • Liabilities and consequences of breach of duty • Unfair/Deceptive Trade Practices Act 33 11
9/2/2019 Classification of Agency Relationships Universal Agent • General Agent • Special Agent • 34 Brokerage Defined A broker is one who is licensed to: • List L L • Lease B • Buy E • Exchange A • Auction N • Negotiate S • Sell real property for others for compensation. A provisional broker works on behalf of the broker. 35 Creation of Agency • Listing contract • Buyer agency contract • Dual agency contract • Property management contract • Tenant Representation Contract • In-house brokerage employment contract • Implied agency (by conduct) 36 12
9/2/2019 Scope of Authority • Express agreement (written or oral) Written buyer agency agreement must be in place prior to writing an offer • Implied agreement – act as if agency relationship exists Illegal in NC 37 Scope of Authority • Ratification (apparent authority) - no express agreement but customer accepts conduct of agent • Compensation does not determine agency Written buyer agency agreement required for broker to be paid (NC) 38 Compensation • Is mutually agreed upon in the agency contract (listing agreement and buyer agency agreement • Loyalty goes to the person who employs the agent, not necessarily the person who pays the agent • Agency agreements must be in writing for the broker to get paid Page 152 39 13
9/2/2019 Termination of Agency • Fulfillment of purpose • Expiration of terms • Mutual agreement • Breach by a party 40 Termination of Agency • Operation of law • Destruction or condemnation of property • Death or incapacity of either party 41 Agency Relationships • In NC, every agreement for brokerage services must be in writing Types of Agency Relationships • Exclusive Seller Agency • Exclusive Buyer Agency 42 14
9/2/2019 Types of Agency Relationships • Single Agency • Dual and designated agency • Undisclosed dual agency • Disclosed dual agency • Designated dual agency 43 Agency Relationships Exclusive Seller Agency Broker exclusively represents the seller in a transaction FSBO 44 Agency Relationships Exclusive Buyer Agency Broker exclusively represents the buyer in a transaction 45 15
9/2/2019 Co-Brokered or Cooperative Sale 2 Firms 46 Agency Relationships Buyer agency Broker exclusively represents the buyer in a transaction vs. Seller subagency Broker exclusively represents the seller in a transaction 47 Agency Relationships Dual agency Broker equally represents both the buyer and the seller in the same transaction with permission without compromising either principal 48 16
9/2/2019 Agency Relationships Undisclosed dual agency - Violates licensing law - Jeopardizes interests of both parties - Can result in rescission of contract, forfeit of commission, or lawsuit 49 Agency Relationships Disclosed dual agency - Intentionally created - In-house transactions only - Informed consent of both parties, written prior to presentation of first offer 50 Dual Agent No-Nos Unless you have the parties’ permission you may NOT reveal: • Willingness to accept any terms of sale other than those offered • Motivation for participating in the transaction unless required by statute • Any confidential information unless disclosure is mandated by statute Page 160 51 17
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