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Agent’s duties to clients

 

Whose Who

Principal/Client

The person appointing an agent in an agency relationship.

Customer

The one(s) not represented.

 

Let’s start the description of how a transaction works.  I’m beginning with the Seller contacting an agent and signing a Listing Agreement.

Seller/Principle/Client

Seller/Principle/Client

The person appointing an agent in an agency relationship.

Seller’s Agent/Listing Agent

Listing Agreement

Contract between Seller and Listing Agent

A listing Broker has earned his commission when he brings a “Ready, willing, and able” buyer

A Ready Willing and Able Buyer is One who is prepared to buy property on the seller’s terms and is ready to take positive steps to consummate the transaction.

Buyer/Customer

Buyer/Customer

The person who makes an offer to purchase real estate.

Buyer’s Agent/Selling Agent

The Customer is Due

FAIR AND HONEST DEALINGS

A Customer is not represented.

Special Agent is a listing / Seller’s Agent or a Selling / Buyer’s Agent. They are hired to do one specific act.

An agent may never give law advice or accounting advice.

Consideration (something of value) is not a legal requirement of agency. You may do representation for free.

Agency Disclosure is informing clients/fiduciaries and customers of your relationships which each person.

The commission is negotiable.

A listing agreement terminates immediately upon the death of the seller or listing agent.

 

The Seller is Owed

FIDUCIARY DUTIES

That special relationship of trust and confidence forged by agency whereby the agent puts the principal’s interests ahead of his or her own interest. Fiduciary duties owed to a principal are the same as duties of an agent.

Traditional agency duties (ColdAC)

  • Confidentiality
  • Obedience
  • Loyalty
  • Disclosure
  • Accountability
  • Care

Confidentiality

A duty of an agent to maintain the trusted confidence and secrets of a principal. Neither agent nor non-agent transaction brokers may reveal anything that would weaken the principal’s or client’s position. 

Obedience

A fiduciary duty of an agent to obey the lawful instructions of the principal.

Loyalty

The fiduciary duty of an agent to act at all times solely in the best interests of the principal to the exclusion of all other interests, especially the broker’s own self-interest

Disclosure

A duty of an agent to principle to discover and reveal information that might adversely affect the principal’s position. Also, an affirmative duty of every real estate licensee to reveal adverse material facts about property condition, inability of either party to complete the contract, non-availability of hazard insurance, inclusion in a flood plain, Megan’s law, etc.

Accounting / Accountability 

The agent must account for all funds entrusted to her and not commingle (combine) client/customer funds with her personal and/or business funds.

Care(Reasonable) and Diligence

The duty of an agent to discover and share relevant facts that a real estate licensee could readily discover–such as zoning changes, school closing, new roads, etc.

Duty to a principal that includes confidentiality is loyalty.

Obedience is the type of duty required of an agent when asked by an owner not to place a “Seller Financing” sign in the yard. (Or any sign)

Giving a seller an Estimation of Proceeds from an income property to determine their net profit before listing the building for sale in an example of Care.

When a salesperson doesn’t know something but should have, he did not practice care.  

Negligent Misrepresentation.

(If an agent tells a client that her fireplace will add ambiance in winter and the client buys the property and then finds out the fireplace is just a fake fireplace front, it is Negligent Misrepresentation.)

OR (A buyer tells her agent she wants to purchase a home to have a beauty salon in her garage.

The buyer would like to have a home-based business.

The agent shows the buyer a house with a garage oversized enough for the home-based salon. The buyer purchases the property. When the buyer starts moving her salon equipment into the garage, the city code enforcer pulls up and tells her that this neighborhood is not zoned for home-based business.

The agent did not practice care

 

Who is the Customer?

Whoever you have a written contract with is the client.  The other party is the customer.

 

Buyer Agreements

When the agent has a written buyer’s agreement with the buyer, that buyer becomes the Client/Principle.  The seller will then be the customer.

Representing both sides of the same transaction with written permission explaining what is due to each party is Dual Agency

 
 
 

The Offer

SELLER

BUYER

 
 

It is unethical for a broker representing the seller to tell the buyer the lowest price a seller will accept.

A seller does not have to accept an offer lower than the asking price.

 

Earnest Money

Earnest Money is not mandatory.  But, “Money Talks”.

Monies in a trust account (escrow account) are not assets of the broker. It is the client’s funds, and accurate records must be kept.

 

Withdrawal of Offer or Counteroffer

If a buyer makes an offer on a home and gives his agent a earnest money deposit, but on his way home he saw an open house sign and stopped by.  He loved that house even better than the one he put the earnest money deposit on.  Can he withdraw his first offer and get his earnest money deposit back?

YES. As long as the offer was not accepted.

 

If a buyer makes an offer on a home and gives his agent a earnest money deposit, but on his way home he saw an open house sign and stopped by.  He loved that house even better than the one he put the earnest money deposit on. He made an offer on the second home and put a earnest money deposit down.  Both offers were accepted.  What is the Buyer responsible for?

He is responsible for both offers.

(He bought two properties.)

 

A Purchase Agreement is still valid even if it doesn’t contain a closing date.

The Purchase Agreement defines the legal rights of the seller and buyer. It is a legal document between the seller and buyer.

Offers and Counteroffers must be delivered ASAP.

A broker or agent should caution the seller not to respond to all multiple offers simultaneously.

A couple made an offer on a home, and before it was accepted, they made another offer on another home. They can either back out of the first offer if it is not accepted or buy both. If both offers get accepted before they back out, the buyers are responsible for both contracts.

 

Purchase Agreement

Once there has been a Meeting of the Minds, the Purchase Agreement gets filled out with all the terms and conditions the seller and buyer agreed upon. 

The Purchase Agreement defines the legal rights of the Buyer and Seller.

The Purchase Agreement is the contract between the seller and buyer.

An agent gets to keep his commission if the seller lied about a material fact and the buyer finds out after the transaction closes. 

The Purchase Agreement is between the Seller and Buyer. Neither agent is a party to the Purchase Agreement.

 
 

Transactional Agent

The Purchase Agreement is delivered to the Transactional Agent. (Closing Attorney)

The job of the Transactional Agent to make sure the legal rights of the seller and buyer have been completed before the property transfers ownership.

 

Legal and Equitable Title

During escrow, the seller still has the legal title of the property until it transfers ownership.  The buyer has “equitable title”.  Equitable title is an insurable interest in the property.

Both can be inherited.

Delivery and Acceptance of the Deed gives Legal Title to the Buyer.

Equitable Title is also known as an insurable interest in real estate. It’s the Buyer’s interest. It can be willed.

 

Time is of the Essence

In every Purchase Agreement there is a statement “Time is of the Essence”.  It means punctual performance.  In other words, if one party holds up the transaction, that party may be responsible to the other party for damages.

 

When Agent’s Money is Earned

The Listing/Seller’s Agent has earned their money when they bring a

READY, WILLING and ABLE buyer

to meet the terms of the listing agreement or the seller’s accepted a different offer.

The Buyer’s/Selling Agent earns their commission when the transaction closes.

The listing broker is responsible for paying the selling broker as per the written agreement.

 
 

Listing Agreements

Listing agreements are service contracts.

 

Three Types

When a listing broker brings a ready, willing, and able buyer who can meet the terms of the listing agreement, the listing broker has earned the commission.

Undisclosed dual agency is an illegal form of real estate representation.

 

Exclusive Right Listing

If it doesn’t say “RIGHT,” then it’s wrong for you.

The exclusive right to sell listing agreement requires that compensation be paid to the broker regardless of who sells the property, the broker or the property owner. This agreement is a bilateral contract because both parties exchanged promises and can be forced to act — the agent can be forced to do his duty and the seller can be forced to pay a commission.

source

Exclusive Right to Sell is a listing stating the listing agent will get paid regardless of who procures the buyer. (Procuring Cause) A broker will spend more money on advertising on this listing.

 

What does Procuring Cause Mean?

Procuring Cause or Procured the Buyer

The person who, because of their actions, the transaction is moving forward.  Who found the buyer?

 

Protection Clause

In every listing there is a “protection clause”.  It states that if a buyer purchases your property within________months, days, years, the seller will owe the agent a commission because they were the procuring cause.

Salespeople should keep a list of the people who they showed the property to or introduced the property to.  When the listing expires, give the seller a copy of the list.

The Protection Clause in the listing extends the period of time that a seller agrees to pay a commission.

The broker is not entitled to a commission if the seller sells the property one day after the expiration of the listing unless there is a protection clause in the listing and the agent was the procuring cause of the transaction.

 

Exclusive Listing

Exclusive listing – If the seller finds a buyer, no commission is paid to the agent.  The seller was the procuring cause.  This listing starts off as a unilateral contract.  It becomes bilateral only if the agent procures the buyer.

An Exclusive listing is when the seller wants an exclusive agent but reserves the right to sell the property himself without paying a commission.

 

Open Listing

An Open Listing is a unilateral contract.

Am Open Listing is a unilateral contract.

The phrase “procuring cause” is most important to the broker and seller in an open listing contract. “Procure the Buyer”.

 A salesperson listed Bob’s property. Bob died in a car accident before the salesperson could procure a buyer.  What happens to the listing?

The listing terminates immediately.

 

Net Listing

  1. Net Listings are prohibited in most states because of the uncertainty of the selling price. An example would be your Client says to you that he needs $500,000 from the sale, and you can keep anything you above that.

The type of listing in which the listing agent is least likely to know what his commission will be is a net listing.

 
 
 

Inside the Brokerage

There is only one responsible broker in the office.

 

Agents to the Broker and Sub Agents to the Broker’s Clients

The salespeople under that one responsible broker are that broker’s agents.

That broker’s agents are sub agents to all the broker’s clients.

 

Salespeople

There can be salespeople with salesperson’s licenses or broker’s licenses.

 

Affiliate/Associated Brokers

The brokers who are under another broker.  They can not act independently of their broker.

 

Broker Ownership

The broker owns everything the agents in his office do.

The broker owns all the salespersons listings, clients and customers.

 
 
 
 

The Money

All money received by salespeople must be given to the broker.

When a salesperson completes a trasaction, the commission is given to their broker.

 

Accounting for Client and Customer Funds.

Standard Accounting Practices are used for keeping records. 

A broker has two bank accounts.

Trust Account

Client funds.  They are not assets of the broker.

Business Account

Broker funds.  This is where commission go in and out of.  They pay their bills from here.

A broker can take money out of the client’s trust account only if the buyer and seller have given written approval.

A broker’s trust account (escrow account) is a non-interest bearing checking account.

 

Commingling

A broker cannot use client funds for business expenses.

Commingling is the mixing of the broker’s funds with the client’s trust account funds. It’s illegal. 

 

Conversion

You can’t go to your bank where you escrow funds are and take a cash withdrawal to go shopping at Dillards.

 

Interpleader

 

Employment Agreement

To be legally compliant, every broker must have a employment agreement with every salesperson. (in writing)  The employment agreement spells out the conditions of your association with the broker.

Payment, commission splits, desk fees, expectations and other conditions.

The salesperson and broker agree in writing to the amount the salesperson will be paid. 

When a commission arrives at the broker’s office, before a salesperson receives their money, the broker will take their split.

 
 

If a property manager is collecting rents and the owner of the development walked in the office and requested the cash rents; the property manager must deliver all money to her broker.

You should not accept a secret gift or money from your client or customer.  If you do, it must be given to the broker so that the broker can take their portion.

 

Keep all client records for three years.

 
 

Conflict of Interest

 

Present all Offers

An agent is responsible to submit all offers when they are delivered.

As soon as practicable.

If you client is out of town and they have instructed you to hold all offers until they return, hold the offers.

When you meet with the client, submit all the offers at once.

A broker should tell his seller the ramifications and effects of an offer and to present all requests to the seller as soon as possible. A broker may not hold back any offers from the seller even if he believes the seller will reject them.

Present all offers as soon as possible. If you have more than one offer, submit them at the same time

 
 
 

Earnest Money Deposit vs. Liquidated Damages

The earnest money deposit is a Buyer’s deposit that will get submitted with an offer.  Although an earnest money deposit is not a mandatory condition of the sale, buyers will supply one to show their true intentions.

Liquidated Damages are money set aside to be paid to the party that has been injured.  Some agents will include liquidated damages into the offer to purchase.  The liquidated damages would be paid to the seller if the buyer backs out after a meeting of the minds.

Earnest money is given by the buyer when he offers to show his true intention to move forward with the transaction—Money Talks.

Earnest Money can be used as liquidated damages if it is stated in the contract. 

When a seller refuses to pay the listing broker after the broker produced a ready, willing and able buyer, the listing agent needs to turn the earnest money back to the buyer.

The listing broker can then sue the seller in court for her earned commission.

The listing broker has earned the commission.

 
 
 

Unlicensed Personal Assistant’s duties must be defined in the broker’s policy and procedures manual.

They can carry paper. 

They cannot do anything that requires a license. 

They can refer buyer and sellers to their broker.

A broker and her unlicensed assistant were traveling to deliver a signed counteroffer to their client. On their way, they got into a terrible car crash, and the broker was rushed to the hospital.

What should the unlicensed assistant do?

ANSWER: Carry the counteroffer to the client before going to the hospital. Offers and counteroffers need to be delivered ASAP. 

As long as the Broker is alive, the deal is alive. Also, an unlicensed personal assistant can “carry paper.”

An unlicensed personal assistant can also refer buyers and sellers to the broker.

If a broker wants to buy his seller’s property, he should make his true intentions known.

A Land Contract

Land contracts are when the seller holds the deed and the mortgage.  The deed does not get released to the buyer until the mortgage is paid off.

The buyer and seller  may agree to the length of the financing.  

Nonetheless, the transaction is completed and the broker gets the commission even if the financing is for 15 years.

Bob secured a six-month Exclusive Right Listing Agreement with Sam. Two months into the contract, Sam gave Bob a written notice that he no longer wanted to sell.

The contract will be canceled, but Sam will be liable for any expenses incurred by agent Bob.

When a For Sale by Owner sign contains the term “principals only,” it tells licensees not to bother the seller.

All companies should have a mission statement Mission Statement- “To exceed our customer’s expectations.”

When a brokerage is advertising for “Veterans Only” because they specialize in veterans loans, it is not discrimination.

A buyer’s agent knows his buyer has bad credit.
What should the agent have the buyer do before making an offer? See a loan broker or loan banker.

An agent was sitting at a model home when a buyer knocked on the door after closing hours. The agent let the buyer in, and the buyer made a written offer on a property. The agent should deliver the offer to the developer.   The Developer is the client.

 

Courtesy of Jack

In return for providing financing for a developer, a Broker is given the exclusive listing on all properties in the development.  The Broker is:

  1. an agent coupled with an interest 📍📍📍
  2. a universal agent

A Broker and Seller sign a listing.  The Broker then spends a significant amount of time with a Buyer who makes an offer and purchases the property.  The Broker does not have a written contract with the Buyer.  The Broker is considered to be the agent of:

a)the Seller only (a Seller agent) 📍 📍 📍

b)the Buyer only (a Buyer agent)

c)both the Seller and Buyer (a dual agent)

d)neither the Seller nor the Buyer (a facilitator)