Download Georgia Real Estate, 8e - PowerPoint for Ch 18

Chapter 18
Georgia Real Estate
An Introduction to the Profession
Eighth Edition
Chapter 18
The Principal-Broker Relationship:
Agency
Key Terms
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agency
agent
boycotting
commingling
dual agency
latent defect
middleman
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ostensible authority
patent defect
price fixing
principal
puffing
third parties
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Agency
An agency is created when
one person, the principal,
delegates to another
person, the agent, the right
to act on the principal’s
behalf.
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Agency
In universal agency, the
principal gives the agent
legal power to transact
matters of all types on the
principal’s behalf on a
continuing basis.
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Agency
In general agency, the
agent is given the power to
bind the principal in a
particular trade or business
on a continuing basis.
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Agency
A salesperson is a general
agent of the sponsoring
broker.
A property manager is a
general agent for the
property owner.
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Agency
In a special agency, the
principal empowers the
agent to perform a
particular act or transaction
with no continuity expected
or agreed upon.
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Agency
An example of a special
agency is a real estate
listing.
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Agency
The principal can either be a natural person or
a corporation. An agent can either be a natural
person or a corporation.
When a broker represents a buyer, the seller is
a third party, also known as a customer.
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Establishing the Agent’s Authority
An agency relationship can be established
through an expressed contract or by acts of
the parties, also known as implied.
The written listing agreement outlines the
broker’s authority to act on behalf of the
principal and the principal’s obligations to the
agent.
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Broker’s Obligation to the Principal
When an agency is created, a fiduciary
relationship is created.
The agent must be faithful to the principal,
exhibit trust and honesty, and exercise good
business judgment.
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Broker’s Obligation to the Principal
The broker must be loyal to the principal, obey
legal instructions, maintain confidentiality,
make full disclosure, be accountable for
money, act with reasonable care and treat the
client with honesty, fairness and integrity.
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Loyalty to the Principal
The agent must be loyal to the principal.
The broker is legally bound to keep the
principal fully informed as to all matters that
might affect the sale of the property and to
promote and protect the principal’s interests.
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Loyalty to the Principal
Penalties for breach of loyalty are stiff.
The broker can be sued and their license can
be suspended or revoked.
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Loyalty to the Principal
If a licensee intends to purchase a property
listed for sale by the licensee’s agency or
through a cooperating broker, the licensee is
under a legal obligation to make certain that
the price paid is the fair market value and that
the seller knows who the buyer is and that the
buyer is a licensee.
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Faithful Performance
Obedience means that the agent is to obey all
legal instructions given by the principal.
Performance as promised in the listing
contract.
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Faithful Performance
Obedience means not departing from the
principal’s instructions. If the agent does so, it
is at the agent’s own risk.
If the principal suffers a loss, the agent is
responsible for that loss.
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Faithful Performance
Listing agreements usually include a
statement that the listing broker is authorized
to secure the cooperation of other brokers and
pay them part of the commission from the
sale.
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Treat Information Confidentially
A client should feel free to discuss sensitive
information with the agent, and the agent
must not breach that trust.
When negotiating a sale, the broker must
continue to protect the principal’s financial
interests.
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Treat Information Confidentially
Georgia law requires that all offers be
submitted to the owner, no matter what the
offering price and terms.
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Full Disclosure
An agent has a duty to tell the client
everything.
If you are not sure whether to disclose or not,
disclose.
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Full Disclosure
If you are not sure whether the client would
want to know or not, disclose.
A broker’s duty to disclose includes keeping
the principal informed of changes in market
conditions during the employment period.
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Full Disclosure
If the broker does not keep the principal fully
informed, the broker is not properly fulfilling
the duties of an agent.
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Accountability for Actions and Funds
Received
A broker is accountable for money that they
receive on the client’s behalf.
The earnest money that accompanies an offer
does not belong to the broker.
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Accountability for Actions and Funds
Received
Georgia laws require a broker to maintain a
trust account.
All money received by a broker as an agent for
the principal is to be promptly deposited in this
account or in the trust account of an attorney.
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Accountability for Actions and Funds
Received
The broker’s trust account must be separate
from any personal bank account.
The broker is required by law to properly
account for all funds received into and paid
out of the trust account.
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Accountability for Actions and Funds
Received
Failure to comply with trust fund requirements
can result in the loss of one’s real estate
license.
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Accountability for Actions and Funds
Received
If a broker places money belonging to a client
or customer in a personal account, it is called
commingling and is grounds for suspension or
revocation of the broker’s real estate license.
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Accountability for Actions and Funds
Received
Conversion is the agent’s personal use of
money belonging to others.
Client’s and customers’ money placed in a
personal bank account can be attached by a
court to pay personal claims against the
broker.
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Accountability for Actions and Funds
Received
If a broker receives a check for earnest money
with instructions that it remain uncashed, the
broker may comply with the request as long as
the seller is informed of this fact when the
offer is presented.
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Accountability for Actions and Funds
Received
Earnest money can take any form.
The objective is to disclose to the seller all
material facts that might influence the
decision to accept or reject the offer.
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Reasonable Care
Reasonable care implies competence and
expertise on the part of the broker.
It is the broker’s responsibility to disclose all
knowledge and material facts concerning a
property to the principal.
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Reasonable Care
A broker must not become a party to any fraud
or misrepresentation likely to affect the sound
judgment of the principal.
Giving legal interpretations of documents
involved in a transaction can be construed as
practicing law without a license.
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Reasonable Care
The duty of reasonable care also requires an
agent to take proper care of property entrusted
to the agent by the principal.
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Honesty, Fairness and Integrity
We should be compelled to tell the truth.
Speak to the client in such a way that the
words cannot be misrepresented.
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Honesty, Fairness and Integrity
Fairness requires that we not take advantage.
Treat people with integrity. Treat others the way
you would want to be treated.
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Broker’s Obligations to Third Parties
A broker’s primary and fiduciary obligations
are to the principal.
We owe customers honesty, integrity, care,
accountability and fair business dealing.
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Broker’s Obligations to Third Parties
Misrepresenting a property by omitting vital
information is as wrong as giving false
information.
Everything a broker owes a customer, they also
owe the client.
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Broker’s Obligations to Third Parties
The broker owes the client loyalty, obedience,
confidentiality and full disclosure, not the
customer.
A broker must be careful not to make
statements not known to be true.
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Broker’s Obligations to Third Parties
When a broker must rely on information
supplied by the seller, it is best to have it in
writing and verify its accuracy.
Ignorance results from not knowing all
pertinent facts about a property.
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Broker’s Obligations to Third Parties
The brokers needs to take the time to check
the facts.
This is called “what the agent should have
known.”
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Lead-Based Paint
HUD requires FHA buyers to
be notified and advised
about the possibility of leadbased paint in homes built
prior to 1978.
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Red Flags
A red flag is something that
would warn a reasonably
observant agent that there
may be an underlying
problem.
The agent is responsible for
disclosing this to the seller
and any prospective buyers.
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Red Flags
It is suggested that a broker recommend to the
their client that a specialist be hired to
determine whether or not there is an
underlying problem.
The broker may also want to have the seller
purchase a home warranty for the buyer.
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Owner Disclosure Statement
Seller disclosure forms have become common
in transactions.
Refusal to fill out the form does not relieve the
seller of disclosing their knowledge of a latent
defect.
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Owner Disclosure Statement
A latent defect is one that is concealed, hidden
or could only be recognized by a trained eye. A
seller is always required to disclose if they
have knowledge of a latent defect.
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Owner Disclosure Statement
A patent defect is one that is in the open and
would not take training or specific expertise to
recognize the problem.
When in doubt, treat defects as latent and
disclose.
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Owner Disclosure Statement
Seller disclosure statements are a detailed
disclosure of property defects. The seller fills
out the form which is made available to the
buyer.
A real estate licensee should NEVER complete
the seller disclosure form for the seller!
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Owner Disclosure Statement
Failure to disclose results in misrepresentation
on the part of the seller because of negligence
or perhaps because of innocently overlooking
defects.
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Owner Disclosure Statement
In the worst case scenario, the seller may
intentionally misrepresent a defect in order to
induce a buyer to purchase.
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Owner Disclosure Statement
The seller’s disclosure form informs the buyer
as to which defects exist; provides a basis for
the buyer to conduct further investigation on
the property; allows the buyer to make an
informed decision and may provide a basis for
litigation if the seller filled out the form
incorrectly or failed to disclose a defect the
seller knew was material.
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As Is
Knowing there is a defect allows the broker to
market the property “as is,” disclosing the
defects and limiting liability.
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As Is
“As is” means the seller is not going to make
repairs. It does not excuse the broker from
failing to disclose material information.
“As is” means no warranty or guarantee. It
does not relieve the seller or broker from
liability to disclose a latent defect.
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As Is
Most “as is” provisions will not protect the
seller if the seller has engaged in fraud,
misrepresentation or deception.
The buyer must be given ample opportunity to
inspect the property prior to agreeing to
assume liability as part of the agreement.
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Puffing
Puffing refers to statements that are merely an
opinion or extravagant statements that a
reasonable person would recognize as
exaggeration.
The line between puffing and
misrepresentation is subjective.
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Buyer Agency
Buyer’s brokerage gives the buyer
representation.
The buyer’s broker’s focus is to help the buyer
make informed decisions and obtain the
desired product at a fair price.
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Buyer Agency
The buyer’s broker is more
concerned with a
satisfactory purchase of the
buyer, not just making the
sale.
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Buyer Agency
Most buyers who hire a
buyer’s broker want advice.
The buyer’s broker is
expected to be more
protective of the buyer than
on effecting the sale.
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Principal’s Obligations
The principal has certain obligations to the
agent.
The principal’s primary obligation is
compensation.
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Principal’s Obligations
The agent is also eligible for reimbursement
for expenses not related to the sale itself.
An agent is entitled to indemnification upon
suffering a loss through no personal fault. For
example, when a misrepresentation by the
principal to the agent was passed on in good
faith to the buyer.
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Broker’s Sales Staff
A broker’s sales associates are general agents
of the broker.
A sales associate owes the broker the duties of
competence, obedience, accounting, loyalty
and full disclosure.
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Broker’s Sales Staff
The broker’s obligations to the sales associate
are compensation, reimbursement,
indemnification and performance.
The sales associate owes customers honesty,
integrity and fair business dealings.
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The Complicating Issues
The broker must make full disclosure of every
known item concerning the real estate and the
agency relationship.
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Middleman Principal
When the broker represents neither party, they
are operating as a transaction broker or
middleman.
Neither party expects the broker’s loyalty.
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Dual Agency
When the same broker
represents two or more
principals in the same
transaction, it is a dual
agency and a conflict of
interest results.
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Dual Agency
If a broker represents more than one principal
and does not obtain their informed consent,
the broker cannot claim a commission.
The broker’s real estate license may be
suspended or revoked.
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Dual Agency
An agent cannot maintain their duty of full
disclosure and also maintain their duty of
confidentiality.
Most brokerage companies do not allow dual
agency because of this conflict.
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Designated Agency
In designated agency, there are two clients
and one broker, there are two salespeople
designated by the broker to represent the
individual interest of each client.
This is not a dual agency.
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Agency Disclosure
All parties to the transaction must understand
who is representing whom.
Georgia law requires that disclosure be made
as soon as reasonably possible in the
transaction.
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Agency Disclosure
The law does not require written disclosure
until the time of an offer being made.
If unsure, disclose.
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Agency Disclosure
Dual agency in Georgia is legal.
It is up to the principal to decide whether or
not dual agency is acceptable. The principals
must understand the conflict of interest that
dual agency creates.
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Agency Disclosure
Georgia allows dual agency with informed
written consent.
The broker must be sure that the parties
understand who that broker represents and
the nature of that confidential relationship.
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Termination of Agency
An agency relationship may be terminated in
several ways:
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Death
An agency is not binding upon the estate of the
deceased.
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Expiration
The agent is appointed for a specific period of
time. Once the time has expired, the agency
expires.
The agency may also expire because of
performance.
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Agreement
The parties to the agency may agree to a
cancellation.
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Revocation or Renunciation
Revocation refers to the unilateral cancellation
by the principal.
Renunciation refers to the unilateral
cancellation by the agent.
Either may cancel the agency at any time.
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Incapacity
If one of the parties to the agency were unable
to continue, the agency would terminate.
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Extinction of the Subject Matter
If the reason the agency was created no longer
exists, the agency would terminate.
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Interstate Land Sales Disclosure
Statements
HUD enacted legislation aimed at protecting
purchasers of property in new subdivisions.
This applies primarily to lots located in one
state and sold to residents of another state.
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Interstate Land Sales Disclosure
Statements
The purpose of this legislation is to require
that developers give prospective purchasers
extensive disclosures regarding the lots in the
form of a property report.
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Property Report
A property report prepared according to HUD
specifications is now required to eliminate the
problem that buyers were receiving inaccurate
or inadequate information.
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Property Report
The property report must be given to each
buyer before a contract is signed. Failure to do
so gives the buyer the right to cancel any
contract.
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Not an Approval
The property report is NOT an approval of the
subdivision.
It is a disclosure of certain facts.
HUD allows the buyer a cooling-off period of
seven days for the buyer to be able to cancel
the contract and receive all money back.
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Antitrust Laws
The purpose of federal antitrust laws is to
promote competition in an open marketplace
and regulate any activities that would
endanger that competition.
All real estate brokerage fees are a result of
negotiation between the broker and the owner.
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Price Fixing
Price fixing is illegal.
Price fixing between brokers can result in both
civil and criminal penalties.
Brokers are advised never to discuss their
fees, except with the owner of the property.
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Boycotting
Boycotting other brokers in the marketplace is
a violation of the Sherman Antitrust Act.
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Boycotting
No membership requirements of trade
associations, can be established that may
arbitrarily exclude licensed real estate brokers
from participation.
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Tie-in Agreement
A tie-in agreement is when one contract is tied
to another.
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Penalties
The penalty for violating the
Sherman Antitrust Act is up
to 10 years in prison and up
to a $1 million fine for an
individual.
For a corporation, the
penalty is a fine up to $100
million.
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Errors and Omission Insurance
Errors and Omission
insurance (E&O) will defend
the broker and pay legal
costs and judgments.
E&O does not cover
intentional acts of a broker
to deceive.
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