Mesa Community College REA 281
Principles of Real Estate Law study materials
Agency Contracts
The Purchase Contract
The Residential Resale Real Estate Purchase Contract, Page 9, item 8s, lines 371-372, says: "Agency Confirmation: The Broker named in Section 8r above is the agent of (check one): __ the Buyer; __ the Seller; or __ both the Buyer and Seller." Click here for a copy of the Purchase Contract.
The ER
The Exclusive Right to Sell/Rent (ER) listing agreement, clause five states the agency relationship as follows: "5. AGENCY RELATIONSHIPS. Owner understands that Broker is Owner's agent with respect to this Listing. Owner understands that a Prospect may also wish to be represented by Broker in connection with the purchase or rental of the Premises. In that event, Broker would be serving as the agent for both Owner and the Prospect. Since Owner does not wish to limit the range of Prospects at this time, Owner agrees to work with Broker to resolve any potential agency conflicts that may arise. Owner initially authorizes Broker to cooperate with other brokers in any manner whatsoever." Click here for a copy of the ER.
The EA
The Exclusive Agency Residential Sell/Rent (EA) listing agreement includes the same clause five, but also this clause: "6. OWNER'S RIGHT TO SELL/RENT. Owner reserves the right to sell/rent the Premises during the term hereof, without incurring liability for any compensation to Broker, provided that such sale/rental is not made to a person produced by Broker or with whom Broker has negotiated during the term hereof, or through any other broker, and provided that Broker, prior to such sale/rental, has not become entitled to compensation in accordance with the terms hereof. If Owner sells/rents the Premises, Owner shall promptly notify Broker in writing, specifying the name of purchaser/lessor, the purchase/rental price to be paid and shall indicate whether or not the sale/rental was or is being made through another broker." Click here for a copy of the EA.
Real Estate Agency Disclosure and Election
All agents and brokers must include a duly signed "Real Estate Agency Disclosure and Election" form for all transactions. This establishes the stated agency relationship. Click here to see the agency disclosure form.
Consent to Limited Representation
If dual agency exists, it must be disclosed and acknowledged with a duly signed "Consent to Limited Representation" form. (Click here to see the dual agency form.)
Seller Waiver
The Disclosure of Buyer Agency and Seller Waiver and Confirmation is used under rare circumstances if the agent becomes unavailable and seller wants to deal directly with the buyers. Click here to see the seller waiver form.
Agency Terms
The law of agency
Law of Agency governs the relationship between broker and client.
Fiduciary duty
Agent owes to the client: loyalty, obedience, disclosure, confidentiality, and accounting (per clause Ia and IIa of the agency disclosure contract).
Principal
The client, as documented in the contracts. The principal may be a buyer or seller, but traditionally refers to the seller. Arizona has strong buyer-broker laws where the agent represents the buyer as the client.
Agent
The agent (or associate broker), along with the designated broker and brokerage, owe the client fiduciary.
Customer
Any third party to the agreement between agent and client. The agent owes all parties reasonable skill and care, honesty, truthfulness, and disclosure of material facts.
Voluntary agency
A client may enter into a relationship of voluntary agency orally (not legally binding) or in writing (in a contract).
Implied agency
Situations where agency exists due to actions and/or conduct of the people involved. For example, if a homeowner asks an agent to sell his house, then the agent brings a buyer, the agency relationship is implied. If an agent opens up a house for a buyer this may imply an agency relationship.
Statute of Frauds
Verbal agreements between the parties are valid, but not enforceable. All real estate contracts (except a lease that can be performed within a year) must be in writing to be enforceable.
Involuntary agency
Ostensible agency would be implied if the agent has an ulterior motive. For example, the agent could list a house for the client, yet slant the deal toward a particular buyer.
Estoppel agency would be implied if the agent has a relationship with an outside party that automatically compromises their ability to represent their client. For example, if the agent is related to the client's ex-spouse, or the client's next door neighbor, etc.
Dual agency
One agent (or brokerage) represents both the seller and buyer in a transaction. Since it is impossible to give both parties the full benefit of fiduciary, the relationship must be acknowledged in writing. It is probably safer not to enter into dual agency relationships at all. At a minimum, the agent should learn all the laws, discuss the situation with the designated broker, and consider all the legal implications before going ahead. Everybody would like a double commission, but nobody likes to get sued, fined, or censured.
Agency Creep
Implied agency could turn into dual agency, as agency itself may tend to creep. Therefore, as much as possible, only talk to your own clients and deal with the other party through their agent. If you do anything for the other party, it could compromise your exclusive loyalty to your client. If the other agent's clients ask you to do something for them, decline. Tell them to speak to their agent. Do not get them forms or booklets, do not agree to wait in the house for their inspectors or appraisers, do not schedule inspections or repairs for them, do not recommend inspectors or contractors for them, do not advise them on how to fill out forms.
Smart agents will be discrete around the other party, especially when discussing particulars of the transaction. Smart agents do not try to buddy up with the other agent or agent's clients during the transaction. Smart agents remain neutral toward the other party, polite and honest, yet ready to negotiate from a strong position if necessary.
Termination of agency
Bilateral termination: the contract is cancelled by mutual agreement.
Completion or performance: the sale is executed and the escrow closes. Duties may be considered satisfied if the agent brings an able buyer, even if the client declines the sale.
Unilateral termination: either the client or the agent ends the agreement without the consent of the other. The party that ends the relationship should have a good reason because any commission money or lost ernest money could be disputed in court. For example, the client could try to prove a breach of fiduciary duty. An agent could try to prove that the client was not dealing in good faith. However, an agent should discuss a client with the designated broker before unilaterally breaking a contract.