Complete First Renewal includes your choice of electives (one-time 6 Hr Fair Housing requirement)

Objectives

Upon completion of this section, the student should be able to:

• Describe the disciplinary procedures for licensees who fail to comply with agency law and list possible consequences.

• Given a situation, explain how (why and when) an agency relationship is created and indicate how a broker might fail to comply with agency restrictions, what type of agency exists, the consequences of such a problem, and how to remedy the problem.

• Explain the law as it pertains to agency disclosure, including the forms involved and/or alternative methods.

The Disciplinary Procedures for Licensees Who Fail to Comply with Agency Law

Disciplinary Actions That the Director of the Department of Licensing may impose
If a licensee violates any codes or laws which involve agency disclosure, the agent may be subject to the following:

The director may refer a complaint for violation of agency disclosure before any court of competent jurisdiction.

The prosecuting attorney of each county shall prosecute the violation in the prosecuting attorney's county, and if the prosecuting attorney fails to act, the director may request that the attorney general take appropriate action.

Whenever the director believes that there is evidence that a violation has occurred, the director may take action in the superior court where the licensee resides. The director may enjoin the agent from continuing the violation or continuing to engage in the act. In this action, an order or judgment may be entered awarding a preliminary or final injunction.

Note: Enjoin, in this reference, means to prohibit or forbid.

Note: Injunction, in this reference, is a court order that requires a party to do or refrain from doing a certain act or act

Case Study on Agency

John, a broker for XYZ Investments LLC, was holding an open house for the Smiths. He was their listing broker. Some potential clients visited the open house and wanted to buy the property. John wrote up the offer for the buyers but did not represent them, because of his unique relationship with the sellers (he was their brother-in-law). Even though the Purchase and Sale Agreement (PSA) stated that John represented the sellers and that the selling broker represented neither, the buyers were confused and thought that John represented them as well and was reluctant to sign the contract.

John could have verbally explained that the buyers had no representation and added a phrase that stated that he represented the seller only and that the buyers represented themselves and were advised to seek independent legal counsel.

John remedied the problem by referring the buyers to another broker who could represent them and draw up a new PSA for these buyers.

Agency Disclosure Including the Forms Involved and/or alternative Methods

Agency Relationships and Disclosure Agreements

Agency is the relationship between the broker and the principal (the seller or the buyer). Agency should be disclosed to the principal as soon as possible to avoid any misunderstanding regarding the type of agency that is involved.

Seller Agency Definition

The relationship is between the broker (listing broker) and the seller (owner of the property). When a real estate broker is employed to act in the best interests of the seller in a real estate transaction, this is referred to as a "Seller Agency." The broker has a responsibility to the seller of confidentiality, loyalty, full disclosure, and dedication to purpose.

Buyer Agency Definition

The relationship is between the buyer (or potential buyer) and the broker (buyer broker). The real estate broker is employed by the buyer to act in the buyer's best interest and the agent has a responsibility to act in the buyer's best interests and owe confidentiality, loyalty, full disclosure, and dedication to purpose to the buyer. The buyer's broker may be compensated by the buyer, the seller or both. The source of the compensation does not change the duties that the buyer's broker has to the buyer.

Dual Agent Definition

A dual agency exists when a broker is representing both the seller and the buyer in the same real estate transaction. Since the broker has promised a duty of confidentiality, loyalty, full disclosure, and dedication to purpose to both parties simultaneously, it is necessary to limit these duties in this situation, if both parties agree. The dual agency relationship may have the following limitations:

• The broker must deal with the buyer and the seller impartially

• The broker will have the duty of disclosure to both the buyer and the seller

• The broker will not disclose personal information about the buyer or the seller unless authorized to do so in writing by the parties

• The broker will not disclose what the buyer is willing to pay or the terms that they will agree to, and will not disclose what the seller is willing to accept or the terms that they will agree to

• The broker will not disclose the motivation of the buyer or the seller unless authorized to do so in writing

Note: The broker must get approval, in writing, from both the buyer and the seller to assume the role of a dual agent.

Non-Agency Facilitator Definition

When a broker is working with a buyer or seller, but not representing them, this is referred to as "non-agency." The broker is, in effect, a facilitator to the transaction and is working with a "customer" and not a "client" since an agency does not exist.

Designated Agency or Split Agency Definition

Within a brokerage, a situation may arise where one licensee that is affiliated with a brokerage is representing a seller and another licensee that is affiliated with the brokerage is representing the buyer (in the same transaction). This situation is legal in Washington State and the designated broker of the firm becomes a dual agent. This scenario is known as a designated agency or split agency.

Let's take a look at some situations where a potential conflict of interest that could arise from each of the above relationships.

Seller Agency Conflict

The chances of a conflict of interest with a seller agency are much rarer than with other types of agencies, but this does not imply that none exist. 

An example:

John, a licensee with ABC Realty, has a listing with the Smiths and is the seller's broker. John also has his own home listed for sale at the same time. John's own home is very similar to the Smith's. In the course of performing an open house for the Smiths, John meets a potential buyer. John suggests to the buyer that he should view John'shome and tells them that it is a better value and in a nicer neighbourhood. John puts his own best interests before those of the Smiths because he wanted to sell his own home first which is a conflict of interest.

Buyer Agency Conflict

Paige is a buyer's broker for the Gilberts. Paige tours a home with the Gilberts thatappears to match all of the Gilbert's criteria. The home is also priced well under market value. Paige discourages the Gilberts from considering the home by telling them that itis in a heavy crime area. Paige later informs her brother that he should buy this home for investment and that it was of great value. Paige put her family's best interestbefore that of her buyers' best interest which is a conflict of interest.

Dual Agency Conflict

Jane is a listing broker for the Andersons. Through Jane's advertising of the Anderson'sproperty, Jane finds a buyer for the home. She has obtained written permission from both parties to act as a dual agent. After writing the contract and before presenting it to the Andersons, Jane learns from another broker that there will be another offer coming which may be very attractive. Jane hurries to Anderson's home and advises them to sign the first offer where Jane was a dual agent. Jane receives both sides of the commission because she represented both parties. If she had waited to receive the other offer from another broker, she would have only received the listing office portion of the commission. This was a conflict of interest and the sellers may have been able to receive a better offer.

Non-Agency Facilitator Conflict

Maria is writing up an offer for the Gilberts. She has expressed that she is not representing the Jones, both verbally and in writing. Even though she has done this, theGilberts really did not understand and thought that Maria was their broker and representing them.

Designated Agency or Split Agency Conflict

Tom, a licensee with ABC Realty, has a listing. Pete, another licensee with ABC Realty, finds a buyer who would like to purchase this listing. Pete uses a conference room at the brokerage to write up the offer. While doing so, Tom listens in on the conversation that Pete is having with his clients. Tom learns about information that is considered confidential such as the top price that the buyers are willing to pay. Tom relays this information to his sellers. A major conflict of interest exists here.

Let's look at the Revised Code of Washington (RCW 18.86.020):

RCW 18.86.020

Agency Relationship

(2) In a transaction in which different brokers affiliated with the same firm represent different parties, the firm's designated broker and any managing broker responsible for the supervision of both brokers, is a dual agents, and must obtain the written consent of both parties as required under RCW 18.86.060. In such a case, each of the brokers shall solely represent the party with whom the broker has an agency relationship, unless all parties agree in writing that the broker is a dual agent.

Example: 

John, a licensee with XYZ Realty, has a listing. Peter, a licensee with XYZRealty, finds a buyer for this listing. A designated agency allows both John and Peter to represent their clients even though they work for the same brokerage

Let's look at some ways in which each of these agencies might be formed:

Express Agency

Express agency is created by either an oral or a written agreement between the principal and the broker. It indicates their express intent for this representational status. In real estate, an agency is normally created by either a written listing agreement with a seller or a buyer agency agreement with a buyer.

An agency relationship which is created after the fact when the principal agrees to be bound by the actions of another person who was acting without authority is known as the agency by Ratification and is a type of express agency.

Implied Agency

It is also possible to create an agency relationship by the actions of the parties. If a real estate broker takes on responsibilities that are normally those of a broker but hasn't signed an agency agreement, she may still be considered an agent via an implied agency. By the same token, if the customer asks the agent for advice or actions that are normally those in the agency, then an implied agency could be created. For example, if a buyer wants to buy a broker's listing, the buyer could become a customer or a client of the broker depending on the broker's actions.

Agency by Estoppel

Agency by estoppel is also known as "ostensible agency." It is an agency relationship created by the actions, behaviour, or statements of the principal and/or the broker upon which a third party relies. The ostensible agency may be found by a court where no agency relationship was intended by the principal.

Let's look at some ways that agency relationships could be established:

Seller Agency

Let's look at some examples where a seller agency might be established:

Example: Joe of ABC Realty sends out a flyer to 50 homeowners in a neighborhood. The flyer offered the homeowners a complimentary market analysis. Joe gets a call from the Barkers requesting a market analysis on their property. After performing the market analysis, the Barkers ask Joe to list their property.

Example: 

Gerry, a broker with XYZ Properties LLC, canvases an area and knocks onhomeowner's doors offering his services as a listing agent. One of the homeowners hiresGerry to list their property.

Example: 

A homeowner places a call to XYZ Realty to inquire about listing her property. James, who is on floor duty and answering the phone at the brokerage, takes the call, performs market analysis, and lists the property.

The most common form of a seller agency disclosure would be a listing agreement:

Please take note that paragraph 2 deals with Agency and Dual Agency in its entirety. 

Another common disclosure agreement would be the Agency Disclosure Form.