Real Estate Book Chapter 4

Agency

Refers to a strict defined legal relationship. In real estate, agency refers to the relationship that a broker, managing broker, or residential leasing agent may have with buyers, sellers, landlords, or tenants.

General agency

The broader sense of agent – client relationship. The relationship of the broker, managing broker, or residential leasing agent with a sponsoring broker is also called a general agency because they represent the sponsoring broker and all daily actions. Established by contract.

Agent

The individual who is authorized and consent to represent the interest of another person. In real estate, a firm’s sponsoring broker is the agent and share’s responsibility with licensees who work for him

Brokerage agreement

in agreement, written or oral, between a sponsoring broker and a consumer for licensed activities to be provided to a consumer in return for compensation. in Illinois, any exclusive brokerage agreement must be in writing.

Consumer

A person or entity seeking or receiving licensed activities

Client

A person who is represented by licensee

Customer

A consumer who is not yet being represented by the licensee

Compensation

The valuable consideration given by one person to another in exchange for the performance of some activity or service. In real estate compensation includes: commissions, referral, finder fees, bonuses, prizes, etc.

Confidential information

Information obtained by licensee during the term of a brokerage agreement that was made confidential by written instruction or deals with negotiating position of client or is information that that could materially harm the negotiating position of the client. Disclosure is acquired by law unless client gives authorization.

Principal

The client is the principal to whom the agent gives advice and counsel. Primary duty is to comply with brokerage agreement and cooperate with agent and Must not hinder process and compensate according to term agreements.

The principal is owed statutory responsibilities in Illinois.

Fiduciary responsibilities (statutory responsibilities in IL)

Agency agreement authorizes real estate licensee to act for principal. Fiduciary duties are now owed to the principal by the licensee. They are:

Care

Obedience

Loyalty

Disclosure

Accounting

Confidentiality

The duty of care

Must exercise care of clients. Principals expect agent’s skill and expertise in real estate matters to be superior to average person agent should take care to know all facts pertinent to all principles affairs, not just housing characteristics and financing

The duty of obedience

Obligates the agent to act in good faith at all times obeying the principal’s instructions in contract. However, an agent may not obey instructions that are unlawful or unethical.

The duty of loyalty

The principle’s interest come first even above self interest of the agent. Agents must not consider how the result of negotiations will serve their own interest, but rather by promoting the principal’s interests to the highest degree.

The duty of disclosure

It is the agent’s duty to keep the principal informed of all facts or information that could affect a transaction. Includes all relevant information or material facts that the agent knows or should have known about.

Disclosure forms are usually completed by the seller before he signs the listing agreement or at the time of signing. The sellers agent is required to disclose all material defects known to her. An agent for a buyer must disclose deficiencies as well.

Completed disclosure forms are given to buyers before an offer is made. If the disclosure form is delivered after the offer has been accepted and if any negative disclosures, the buyer has three business days to cancel the contract.

If the seller learns of a new problem after a contract is signed, and up until closing, disclosure must be made in writing to the buyer.

The duty of accounting

Most states’ license laws require that agents periodically report the status of all funds or property received from or on behalf of the principal. Illinois licenses are required to deliver true copies of all initialed documents to the people who signed or initialed them within 24 hours. In Illinois, all funds and trusted to a licensee must be deposited into a special escrow account by the next business day.

Commingling

Mixing clients money with licenses, personal or general business funds. ILLEGAL

Conversion

The practice of using escrow funds as the licensee’s own money. ILLEGAL.

Escrow account transactions should be kept on file for at least five years.

Earnest money

Good faith deposit in escrow account (can be lost if buyer walks) used to show seriousness of a buyer.

The duty of confidentiality

Key element. Client info obtained during the term of brokerage agreement must go to the grave. Agent may not reveal principles willingness to accept or urgency to sell.

Material fact

Any fact that, if known, might reasonably be expected to affect the course of events. All material facts must be disclosed.

Opinion versus fact

Real estate licensees must make sure that consumers understand whether statements they make are opinion or fact. Statements of opinion are permissible as long as they do not have any intention to deceive. Statements of fact must be accurate.

Puffing

Agents exaggerate the benefits of houses. House appearances are puffed by word. Puffing is not illegal, licenses, must ensure that none of their statements can be interpreted as fraudulent.

Fraud

Intentional misrepresentation of a material fact so as to harm or take advantage of another person. Includes not only making false statements, but also intentionally concealing important facts. The misrepresentation does not have to be intentional to result in licensee liability.

Negligent misrepresentation

Occurs when the licensee should have known that a statement about a material fact was false. If the consumer relies on the licensee statement, the licensee is reliable for any damage damages that result.

Illinois real estate license act

States that a licensee shall not be liable to a client for providing false information to the client if the false information was provided to the licensee by a customer or other client unless the licensee knew or should have known the information was false

The act also states that licensees shall treat all customers honestly and shall not negligently or knowingly give them false information.

Latent defects

A structural defect that could not normally be uncovered or seen during the course of an ordinary inspection. The seller has a duty to disclose any known latent defects that threatened structural soundness or personal safety.

It is the licensed duty to disclose any material facts that may affect the properties value or desirability, whether or not they are known to or disclosed by the seller.

Stigmatized properties

Property Associated with tragedy or negative event, such as homicide, gang related activity, or a tragedy like suicide. Properties may be stigmatized by haunting rumors. In Illinois license have no legal duty to disclose that a property is stigmatized.

Megan’s Law

General name for state and federal laws requiring law-enforcement authorities to make info available to the general public regarding registered sex offenders. Federal law also requires persons convicted of sex crimes against children to notify local law-enforcement of any change of address/employment.

Listing agents have no legal duty to disclose of a registered sex offenders proximity.

(IL) article 15 of real estate license act of 2000 states:

No cause of action shall arise against a licensee for the failure to disclose a fact situation on property that is not the subject of the transaction

Customer level services

An agent’s primary responsibility is to the principal, but the agent also has duties to third parties. However, these third parties are not owed fiduciary duties. Still, licenses are to treat all customers honestly and cannot negligently or knowingly give them false info.

Creation of agency

An agency relationship may be based on a formal agreement between the parties Or result from parties behavior

Express agency

The principal and agent may enter into an express contract in which the parties formally expressed their intention to established an agency relationship, and state its terms.

Implied agency

Occurs when the actions of the licensee indicate the licensee has formed an agency relationship with the party. Even if licensee may not have consciously plan to create the relationship, the parties can create one unintentionally by their actions.

E.G: showing a house to a buyer randomly, all of the sudden, with no contract

Listing agreement

An agency relationship is created by this written employment contract, which author authorize the sponsoring broker, to find a buyer or tenant for the owners property

Buyer agency agreement

Stipulates the activities and responsibilities the buyer expects from the sponsoring broker and finding the appropriate property for purchase or rent.

Compensation in Agency

The source of compensation does not determine agency. A real estate agent does not necessarily represent the person who pays her commission.

gratuitous agency

An agency that can’t exist, even if no fee is involved.

Termination of agency

And agency may be terminated for any of the following reasons, death destruction, expiration, mutual agreement to end, breach, or by operation of law.

Licenses are not allowed to obtain a written broker agreement that does not expire automatically within a certain period of time. (Listing agreements cannot be automatically renewed.)

Agency coupled with interest

The agent has an interest in the subject of the agency, such as the property being sold. Cannot be revoked by the principal or be terminated upon the principal’s death.

Universal agent

Person empowered to do anything the principal could do personally. Universal agents authority to act on behalf of the principal is virtually unlimited.

In Illinois, a written power of attorney is required to create a universal agency.

General agent

May represent the principle in a broad range of matters related to a particular business or activity. The general agent may bind the principal to any contract within the scope of the agent’s authority.

Property manager to property owner.

Brokers/managing brokers to sponsoring broker.

Special agent

Authorized to represent the principle in one specific act or business transaction only, under detailed instructions. Usually any real estate licensee, if hired, is a special agent to the client. Can only carry out specified acts.

Designated agent

Authorized by the sponsoring broker to act as the agent of a specific principal. Only licensee in the company who has a fiduciary responsibility towards that principle, at the sponsoring brokers say so.

The sponsoring broker is the only one who is allowed to take care of confidential info disclosed by a client to the designated agent

Single agency

Basic form of representation, when an agent or firm represents one party exclusively.

While a single agency licensee may represent both sellers and buyers, that licensee cannot represent both in the same transaction.

Buyer agency

Many licenses involved with residential property are discovering opportunities for buyer representation. A buyer agency relationship.

Property management agency

An owner employing a sponsoring broker to market, lease, maintain, or manage the owner’s property. Sponsoring broker equals agent of property. Requires property management agreement.

Dual agency

Agent represents two principles in the same transaction. Require requires equal loyalty to two separate principles at the same time. Challenge is fulfilling fiduciary obligations to one without compromising the other’s.

in Illinois, legal, but frowned upon

Disclosed dual agency

Real estate licensing laws permit dual agency only if the buyer and seller are informed and consent to licensee representation of both in the same transaction.

Possibility of conflict of interest still exist, But disclosure is intended to minimize the risk.

Undisclosed dual agency

A license he may not intend to create a dual agency. For example, a license representing the seller might tell a buyer that the seller will accept less than the listing price to entice the buyer into making an offer.

Create implied agency with the buyer and violates loyalty to seller

Disclosure of agency

Real estate licenses are required to disclose the parties they represent. Understanding the scope of service a party can expect from the agent allows consumers to make informed decision on representation.

Licenses are considered to be representing the consumer they are working with unless there is written agreement sponsoring different relationship.

Substantive contact

When the dialogue between a licensee and consumer moves from casual conversation to consumers motives, if disclosed, could harm consumers bargaining position.