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Chapter 21________________The Principal-Broker Relationship: Agency

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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 owner Agent = Broker Client = Principal

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Establishing Authority

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.

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Commission

Skills and Knowledge

PrincipalAgent

Agency Relationship

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• Care• Obedience• Accounting• Loyalty

(Competence and expertise)(Lawful instructions)(For funds received)(Principal’s interest first)

Broker’s Obligation to Principal

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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

Disclosure Liability

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Red Flags “As Is” Puffing Lead-based paint disclosure on homes built

prior to 1978 Home Inspections

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Buyer Agency

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.

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Agency Disclosure 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.

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Information

Owner disclosure information Interstate land disclosure statements Antitrust laws

◦ Price fixing◦ Boycotting

Errors and Omission insurance

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Key Terms Agent Boycotting Commingling Dual agency Middleman

Ostensible authority Price fixing Principal Puffing Third parties