Unit 5 Agency Relationships (California Real Estate Principles)

Agency is a legal relationship in which a principal authorizes an agent to act as the principal’s representative with third parties.
Creates a fiduciary relationship between agent and principal; agent owes loyalty, integrity, and utmost care. Must act fairly and honestly with third parties.
Agents can be:
- special agent (limited scope) or general agent (broader scope) depending on authority scope.
- authority defined as actual authority (written in a contract) or ostensible/apparent authority.
Power of attorney (POA) is a written document giving someone authority to act for another; types: special and general; the agent is called attorney-in-fact.

Parties: Principal (buyer or seller), Agent (broker), Third party (customer).
Common relationships:
- Listing Agent (seller’s agent) / Selling Agent (buyer’s agent)
- Subagent (broker delegated by listing agent representing seller, if authorized)
- Cooperating Broker (assists listing broker; may represent seller or buyer; earns part of the commission)
- Dual Agent (broker represents both seller and buyer with written, informed consent of both principals)
A Sales Associate (associate licensee) is the agent of the employing broker, not automatically an agent of buyer or seller.

Agency can be created by:
- Agreement (express or implied), Ratification, or Estoppel (ostensible/implied agency).
Written contract is generally required for enforceability in court (e.g., listing or buyer representation agreements).
Termination events: full performance, expiration of term, mutual agreement, destruction of property, death/incapacity of principal or agent. An agency coupled with an interest cannot be revoked.
Principal may revoke the agency, but may owe commission if breach occurs.

California requires Disclosure Regarding Real Estate Agency Relationships (AD form) for all residential transactions of 1–4 units.
DEC mnemonic for the process:
- Disclose: explain agency role (seller’s agent, buyer’s agent, or dual agent).
- Elect: all parties acknowledge understanding of the agency relationship.
- Confirm: sign a separate Confirmation of Real Estate Agency Relationships (AC form) to confirm in the contract.
Who presents the written disclosures:
- Listing Agent to seller before listing agreement.
- Selling Agent to buyer before offer.
- If selling agent is different, seller before offer is accepted.
Disclosures cover: roles, duties, and confidentiality rules (dual agency has heightened duties and limits on disclosures).
Forms and sections reference Civil Code 2079.13-2079.24; in residential transactions (1–4 units).

Agent’s duties to principal (COALD):
- Care, Obedience, Accounting, Loyalty, Disclosure.
- Reasonable skill and care; honesty, fair dealing, and good faith; disclose all known material facts not known to the other party.
- Present all offers to the principal unless offers are patently frivolous.
Easton v. Strassburger standard: agents can be liable for defects they should have known through reasonable diligence; duty to disclose known or should-know material facts.
Duties to third parties: fair and honest dealing; disclose known material facts; no misrepresentation; avoid puffing (opinion not presented as fact).
Misrepresentation types: innocent, negligent, fraudulent; Puffing is an exaggerated opinion, not a factual claim.
Commingling: mixing client funds with broker’s own funds is illegal; deposits must go to trust/escrow accounts; misappropriating funds can lead to liability.

Exclusive Right to Sell (ERtS): broker earns a commission regardless of who sells during the listing term; bilateral contract; definite termination date required.
Exclusive Agency: broker earns commission only if broker procures the buyer; seller can sell without a broker and owe no commission; becomes bilateral upon procuring a buyer.
Open Listing: non-exclusive; multiple brokers may be involved; the procuring cause principle applies; no guaranteed commission unless a broker procures a buyer; no definite termination date.
Net Listing: commission is any amount above a stated net to the seller; disclosure required; subject to regulation.
Option listing: broker has right to purchase listed property; full profit disclosed in writing before exercise.
CAR forms renamed: Residential Listing Agreement - Exclusive (RLA); Residential Listing Agreement - Agency (RLAA); Residential Listing Agreement - “Open” (RLAN).
MLS exposure and cooperation: listings are typically submitted to MLS; cooperation with other brokers via MLS; explicit authorization needed for subagency to other brokers.

Commission is earned when a broker produces a buyer who is ready, willing, and able to purchase on the seller’s terms (or when a binding contract is formed).
Procuring Cause: the broker who first introduces and moves the buyer to the point of sale; disputes may occur between multiple brokers involved.
Safety/Protection clause: protects the listing broker’s commission if the owner sells to a protected buyer after the listing expires.

A cooperating broker may represent the seller or the buyer; not automatically a subagent for the seller.
Subagency requires explicit seller authorization; without it, the cooperating broker can choose to represent either party.
When the buyer is represented by a cooperating broker, the agency relationship is established by implication when the broker acts in the buyer’s best interests.

Dual agency: requires informed written consent of both parties; fiduciary duties apply to both principals; cannot disclose price-reducing or price-increasing information without consent; confidential information protection remains intact.
MLS data and Internet exposure: brokers must comply with MLS rules; options exist to opt out of certain Internet features; any opt-out requires separate instructions signed by the seller.
Misconduct and ethics: misrepresentation, concealment of material facts, and trust fund violations can lead to license suspension or revocation.
Agency can be modified later by written agreement between the parties; the agency relationship remains subject to Civil Code provisions.

1-4 dwelling units: residential transactions fall under AD/AC disclosure requirements.
COALD: Care, Obedience, Accounting, Loyalty, Disclosure.
DEC: Disclose, Elect, Confirm.
Proving commission requires procuring cause or a written contract that supports compensation.
Exclusive Right to Sell vs Exclusive Agency vs Open Listing: different triggers for earned commissions and buyer-proof requirements.
Easton v. Strassburger: duty to disclose known or should-know material facts.
Dual agency requires explicit, informed consent of both principals and careful handling of confidential information.

2079.13-2079.24: definitions, disclosures, and procedures related to agency relationships.
2079.14, 2079.15, 2079.16, 2079.17, 2079.18, 2079.21, 2079.22, 2079.23, 2079.24: specific disclosure and confirmation requirements, dual agency rules, and enforcement.

Always use the Disclosure Regarding Real Estate Agency Relationships form when applicable and ensure all parties acknowledge receipt and understanding. If you desire legal advice, consult an attorney.