Agency Law Version 7.11. Learning Objectives Upon completion of this course, participants will be able to: Understand how common law affects real estate

Agency Law

Version 7.11

Learning Objectives

Upon completion of this course, participants will be able to:

• Understand how common law affects real estate law

• Define terms used within this chapter

• Identify the six keys of a fiduciary responsibility

• Explain the importance of full disclosure

Learning Objectives


• Understand the ways an agency relationship can be created or terminated

• Explain the differences between the types of agency relationships

• Recognize the risks in accepting a dual agency relationship

• Discuss how designated agency can be safer than dual agency

Learning Objectives


• Discuss the benefits afforded to clients by buyer’s agents

• Identify the opportunities of buyer’s agency

• Explain the general provisions of a buyer contract

• Understand the possibilities for fee arrangements within a buyer agency situation

Learning Objectives


• Recognize the variation of real estate disclosure law between states

• Understand the broker’s responsibility to decide what type of agency relationship his/her employees may generate

• Discuss the importance of broker supervision and training

• Identify current trends in the real estate industry

The Basics of Agency Law

History and Background of Agency Law

"What do you mean, you don’t represent me? We have been together 2 weeks, looked at over 20 houses and you are getting a commission when I buy this house! How can you say you are working for the person who owns the house?”

Real estate agents may act as the agent of a seller, a buyer, or in some states, both. An agent may be generally defined as someone who represents another, in dealings with third parties.

Common Law

• The principles of agency have their roots in “common law” which developed in England centuries ago based on judicial decisions for the long term benefit of society. Common law today forms the basis of each state’s legal system; except for Louisiana, which is based on the French legal system.

• Agency law concerns any “principal-agent” relationship.

• The law of agency is based on Latin – “Qui facit per alium, facit per se.” This translates to “He, who acts through another, is deemed in

law to do it himself.”

Traditional Common Law Agency Duties

When trying to remember the agent’s common law duties, we can use the acronym COALD. COALD stands for Care, Obedience, Accounting, Loyalty, and Disclosure. Let’s take a closer look at each of these duties.

Care

• The agent must show “reasonable care and skill.” If an agent is not exercising care in all he or she does, the results could be unfavorable for the agent.

Accounting

• Accounting refers to all money that is handled on behalf of the principal.

• All funds must be deposited into special escrow or trust accounts and can never be mixed with the agent’s personal funds.

Loyalty

• The agent’s loyalty must be 100% to the principal. The agent must put the principal’s interest above all others.

• Along with loyalty to a client comes confidentiality.

Disclosure

• An agent must be sure to provide the proper disclosure to the principal in any situation where it is necessary. Failure to provide proper disclosure, even unintentionally, could be considered fraudulent and action could be taken against the agent.

Agent Responsibilities to Third Parties

• An agent’s primary responsibility is to the principal. However, agents are also obligated to deal with third parties, which in most states are called “customers.” An agent works with third parties on behalf of the principal. When dealing with third parties, agents are required by law to act with honesty, integrity and fair business dealings. It is important to remember the laws connected to disclosure when dealing with third parties. Giving false statements or omitting information could lead to loss of commission, or in serious cases, loss of license.

Test your Knowledge!

A(n) _____ may be generally defined as someone who represents another, in dealings with third parties.

A. Consumer

B. Agent

C. Client

D. Principal

(Answer by clicking in the feedback panel)

Fiduciary Responsibilities

•The fiduciary duties pick up where the common law duties left off. You will notice that for the most part, the duties are the same, with the exception of confidentiality. Under the common law duties, confidentiality tends to get lumped in with disclosure. The most common fiduciary responsibilities can be summed up as:

• Loyalty

• Obedience

• Confidentiality

• Disclosure

• Reasonable care and diligence

• Accounting

Loyalty

• Loyalty refers to the fact that the agent must demonstrate loyalty by acting in the best interests of the principal or client. If you take a listing from a seller, you are duty bound to try to get the best deal for your client. You have to work for the best price and terms. You have to investigate all offers received and strive to maximize the benefits to the seller.

Obedience

•Obedience means that you as agent are under the control of your principal and must obey their instructions; as long as they are within the law.

• Vicarious Liability: Liability that is imposed for another's acts because of imputed or constructive fault (as negligence). This means that the principal is responsible for the acts of the agent, if the agent is following instructions from the principal.

• Respondeat Superior: A doctrine in tort law that makes a master liable for the wrong of a servant. The doctrine making an employer or principal liable for the wrong of an employee or agent if it was committed within the scope of employment or agency. The definition from Latin translates to “let the superior give answer.” It means that the principal can be held accountable for any harm caused through the use of an agent.

Confidentiality

• Confidentiality means the agent owes a bond of confidentiality to the principal or client. As agent, you may not discuss or reveal facts or information that may harm the interests of your client.

• For example, as an agent you would be prohibited from revealing personal information about a client’s marital problems, financial problems or need to sell a property. You may not disclose a price that a principal has indicated as acceptable for a sale.

Disclosure

• Disclosure laws require that an agent must make a full disclosure, in a timely fashion, of all known facts that are “material” to the transaction.

• Material:

• Of, relating to, or consisting of physical matter

• Being of real importance or consequence

• Being an essential component

• Being relevant to a subject under consideration

• Being such as would affect or be taken into consideration by a reasonable person in acting or making a decision

Disclosure is required, even if the effect is adverse and might result in quashing the deal. Disclosure is required even if the information is discovered after a purchase contract is signed.

Duty of Care

• Reasonable care and diligence must be employed by the agent. Expectations of the agent exceed simply finding a buyer. The agent is considered to be qualified to exercise judgment and be knowledgeable about the title and physical considerations of the property.

Accounting

• Accounting for monies or contracts received on behalf of a client or principal is part of the agent’s fiduciary responsibilities. Monies received by an agent as earnest money for a deposit according to a purchase contract are to be held in trust for the principal and delivered in a reasonable time. Brokers who retain trust funds must do so in a trust account that is separate from their own accounts.

Trust Accounts

• In most states it is mandatory that all brokers maintain a separate account in a financial institution in that state as a trust account in which all down payments, earnest money deposits, advance listing fees or other trust funds received by the agent must be deposited unless everyone with an interest in the funds has agreed otherwise in writing.

• In some states brokers are only allowed to use interest bearing accounts. In others, only noninterest bearing account may be used.

•The biggest hazard of dealing with trust accounts is the commingling of funds. The commingling of funds involves mixing of funds to be deposited in the trust account mingling with the broker's personal funds.


An agent should always obey the instructions of their client, unless:A. The instructions are illegal

B. The action doesn’t make sense

C. The instructions make the sale difficult

D. The agent doesn’t agree with the client


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Developing Agency Relationships

Creation of Agency

• An agency relationship is a moral and legal obligation between two parties. It takes two to tango! Both parties must agree to it, and both accept obligations under the relationship.

Here are some types of Agency Relationships:

• Expressed Agency

• Implied Agency

• Agency by Estoppels

• Agency by Ratification

Expressed Agency

Expressed Agency – An actual agency created by the written or spoken words of the principal authorizing agent to act.

Implied Agency

Implied Agency – An implied agency may occur unwittingly or unknowingly. It arises from actions, not words.

Agency by Estoppels

Agency by Estoppels – An agency that is not created as an actual agency by a principal and an agent but that is imposed by law when a principal acts in such a way as to lead a third party to reasonably believe that another is the principal’s agent and the third party is injured by relying on and acting in accordance with that belief.

Agency by Ratification

Agency by Ratification – There is no formal definition of this in the Merriam-Webster’s Dictionary of Law. Suppose you were an agent for a buyer, you approached an owner who was trying to sell his property privately and got permission to show it to your buyer. If your buyer then made an offer that was accepted, the seller would enter into an agency by ratification when he signed the purchase agreement.

Misconceptions about the Creation of Agency

• Misconception Number One: The agent who is showing you a property automatically represents you.

• Misconception Number Two: In order to create an agency relationship, a client must provide immediate compensation.

• Misconception Number Three: The party that pays the fees determines agency relationships.

The Effects of Agency Relationships

New real estate professionals may not immediately recognize their career as one of the most lawsuit-laden fields in the country. The chances of real estate professionals being sued is quite high due to the various forms of legal liability to which they are exposed.

Contract Liability

The listing agreement between a real estate broker and a seller typically requires the broker to exercise his or her “best efforts” to find a buyer for the seller. But the term “best efforts” is entirely too open to interpretation, so if the seller believes that a busy broker has not actually exercised his or her “best efforts” to locate a suitable buyer, the real estate broker may be looking at a lawsuit seeking damages for the delay in selling the real estate that is attributable to the broker or agent’s failure to exercise his or her best efforts. Even if the broker wins, he or she may still have to pay legal fees, and the time and worry spent on the lawsuit could keep him or her from other clients that need attention.

Tort Liability: Negligence and Fraud

Anyone could be held liable for negligence in just about anything they do that involves a risk. For example, if you are riding your bike and you cause a fender-bender because of your careless riding, you could be sued for committing a “tort.” The critical difference in tort liability between the average person and skilled professionals is known as “standard of care.” As an ordinary bike-riding citizen, you would be held to an ordinary standard of care; breach of this care would subject you to any damages caused by your carelessness. In the case of real estate professionals, brokers are held to a particularly high standard of care (ordinary care is not enough) when it comes to their professional activities, and can be sued for malpractice (think doctors) if they fail to meet this standard.

Licensing Regulations

As you are certainly aware, real estate professionals need to be licensed; in order to obtain a license, they need to subscribe to certain professional standards of conduct, breach of which could subject them to liability. Many of these standards are imposed by statute as opposed to rules set forth by the Commission or an association. The biggest difference (in some states) between an association rule and a public statute is that if a professional violates a private rule, he or she usually will be liable only to revocation of license, whereas if the professional violates a statute, he or she can be sued for damages suffered by a seller or buyer.

Constructive Notice and Imputed Notice

• The sharing of information is crucial in the agent/client relationship. Agents and clients need to build a certain level of trust between them, and sharing information is a great way to do so.

• Constructive notice actually can be described as giving notice without giving notice. Instead of handing a person notice of some fact, the person giving notice could post it on a bulletin board that the public is likely to see, or put the notice in a periodical with a large circulation in the area.

• Unless otherwise agreed to in writing, a principal does not have knowledge or notice of any facts known by an agent or subagent of the principal that are not actually known by the principal. The same goes for any knowledge or notice of any facts known by a subagent that are not actually known by the licensee. This does not in any way limit the knowledge imputed to a real estate broker of any facts known by an associate real estate broker or real estate salesperson licensed to such broker.


An agency that is created because the agent’s actions can insinuate their intentions create such a relationship is an:A. Expressed agency

B. Implied agency

C. Agency by estoppel

D. Agency ratification


Details of the Types of Agency

• Here is a quick look at all the various types of agency that may occur in real estate. Then we will look at each in detail on the following slides.

• Single Agency

• Seller Agency

• Buyer Agency

• Dual Agency

• Sub-Agency

• Intermediary

• General Agency

Single Agency

Single Agency: In the arrangement you work for only one party – take your pick. If you are the agent for the seller, you represent only that person. You then work with buyers, or their agents. Or, obviously, you may decide to represent a buyer and proceed in the best interests.

Seller Agency

Seller Agency: Seller agency has traditionally been the most common type of agency. The agent proclaims allegiance to the seller and works on that person’s behalf. Such agents are free to work with buyers, as long as the buyer understands whom the broker represents.

Buyer Agency

Buyer Agency: If a single agency broker represents a buyer in a single transaction, the broker is an agent for the buyer at that time. However, there are some brokers who represent only buyers and are called buyer’s brokers.

To avoid conflicts of interest it is important that proper disclosure of the broker’s role be made clear.

Dual Agency

Dual Agency: It is possible, in some states for the broker to represent both the buyer and the seller. The broker then must pursue the fiduciary interest of both parties.

This is possible under the law in some states if both parties are made aware of the relationship and the agent obtains a declaration of “informed consent” from both parties.

Dual agency is a situation fraught with peril and generally should be avoided.

Designated Agency

Designated Agency: Similar to dual agency, a designated agency is only legal in certain states. Many states have adopted this practice as a way to allow a single firm to handle a transaction in-house and avoid breaking the laws against dual agencies. Essentially, the firm appoints two separate agents to be “designated” to two separate clients: the seller and the buyer.

Sub-Agency

Sub-Agency: Listing agents routinely employ other agents to help sell the property, and the commission is shared. Subagents are agents of the agents and are bound by the same fiduciary duties. Likewise, listing agents are responsible for the actions of their subagents.

Like any other agency relationship, the type of agency will depend on how it’s created. It must occur with the consent of both parties, either expressed or implied.

General Agency

General Agency: A general agent’s duties can vary depending on the wishes of the principal. Usually a general agent is employed to carry out all matters related to a certain business.


An agency that is created because the agent’s actions can insinuate their intentions to create such a relationship is an:A. Expressed agency

B. Implied agency

C. Agency by estoppel

D. Agency ratification


Termination of Agency

Expiration: Expiration of the agreement is a common means of termination. Most states require a time certain on listing agreements. It is also the case on most agreements to represent a buyer. At the end of the period, the principal’s liability for the actions of the agent expires, along with most obligations of the agent. The fiduciary obligations of the agent end, but certain aspects of confidentiality may continue. If you, as the listing agent, are privy to private information such as the lowest price a seller would accept, you could not take advantage of that if you brought a buyer around later on.

Completion: Completion of the goal of the agreement could also end the relationship. Once you sell the listing, close it, and get your commission, the agency will expire.


Agreement: An agency may also be dissolved by agreement of the parties. A real estate agency relationship is a contract for services to be performed. Perhaps the situation changes and a seller decides he will not take a job transfer and will stay in the house. Maybe the two parties just don’t get along or there are irreconcilable misunderstandings or disagreements. Sometimes the best course of action is an amicable agreement to call the whole thing off.

Abandonment: An agency may also be terminated by abandonment. This is a unilateral decision by one of the parties. It would be a breach of contract and may result in a suit for damages being instituted by the other party. The classic example would be where a seller refuses to accept a purchase offer brought by the listing agent, who has a buyer ready, willing and able to meet all the terms of the listing agreement. The broker may then sue for the commission that was due.


Agency Coupled with an Interest: An exception would be an agency coupled with an interest. This is defined by Merriam-Webster as an agency in which the agent has an interest in the property regarding which he or she is acting on the principal's behalf. If you are part owner of the property, the principal may not unilaterally terminate the listing agreement.

Performance is Impossible: An agency may be terminated when further performance is impossible. This would result, for example, from the death of either party. Also, it could occur if the property were to be destroyed by fire, earthquake or other natural disaster.

Termination by Force of Law: If the purpose of the agency becomes illegal due to the law change, the agency is terminated. Agency can also be terminated if one of the parties involved files for bankruptcy.

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Buyer Agency

Buyer’s Agency

Many buyer agency relationships are similar to the ones traditionally applied to seller representation. Instead of “listing” a seller’s house, the agent may choose to “list” the buyer and make arrangements with them as a client.

Buyer’s Agency

The general provisions of a buyer contract include:• The buyer will pay a commission to the agent

• The agent will assist the buyer in finding a property and negotiating the purchase

• The agreement is for finding a certain type of property

• There will be a certain time period for representation

• Specific duties of the agent will be identified

• The buyer will agree to cooperate with the agent and be available

• The buyer will furnish financial information to the agent

• The fiduciary duties of the agent will be to the buyer

Single Property

A broker may enter an agency agreement regarding one property only. This might be employed in commercial property cases where a seller refuses to list a property or where the buyer does not want client status in general.

Exclusive Rights to Represent

This is analogous to an exclusive right to sell agreement entered into with a seller. It guarantees a broker the exclusive right to represent a buyer for a certain time frame. A commission is due if the buyer purchases any property from anyone

Exclusive Agency

This is similar to an exclusive agency arrangement to sell a property. The agent will be the only agent to be compensated if they affect a sale during the time period specified. However, the buyer reserves the right to purchase a property privately, without the use of any agent.

Open Agency Agreement

Similar to an open listing agreement with a seller, this arrangement allows the buyer to work with other agents as well. The commission will go only to the agent who brings about the meeting of the minds that results in the consummation of a sale.

Duties OwedBuyer’s agency entails very specific duties and responsibilities.

• A buyer’s agent should be familiar with the type of contract being used.

• The buyer’s agent should make sure that the buyer understands the numerous deadlines that appear in most contracts.

• It is the responsibility of the buyer’s agent to make sure that the earnest money agreed to in the purchase contract is collected and deposited, or delivered to the seller’s agent for deposit.

• If deadlines, such as the original closing date are missed and there is a verbal agreement between the parties to extent those deadlines, get the extension in writing.

Duties Owed• If there are blanks in the contracts that need to be filled in,

make sure that every blank is filled in or crossed out and initialed, dated and timed.

• Obtain the signatures of all the parties on the purchase contract.

• Make sure the buyers receive a copy of everything they have signed. Go over all the documents with the buyers and make sure they understand each one.

• Make sure the contract is complete! If there are items in the listing contract that the buyer would like to make sure stay with the property, specify each such item in the purchase contract.

National Association of Exclusive Buyer Agents

National Association of Exclusive Buyer Agents (NAEBA) was founded in 1995, when the time had come for someone to look out for the best interests of the real estate buyer. Traditional REALTOR representation in real estate transactions favored the seller, but starting in the mid-1990s, it became the buyers' turn to level the playing field.

Benefits to Parties

Buyer agency has benefits to both buyers and sellers. Let’s examine first the benefits to a buyer. The buyer gets:

• Professional representation of their interests

• Advice on financing and other terms and details

• Access to a larger pool of listings. The buyer agent may search all sources of listings; MLS listings, open listings, “for sale by owner”, foreclosures, REO and trust properties.

• A skilled negotiator working to get them the best deal

• Someone who can give advice on specialists who may need to be employed; such as home inspectors or persons to make tests

• Someone to guide them through the entire complicated process

Benefits to Parties

The seller also gets benefits from a buyer being represented by an agent. These include:

• No longer being responsible for the actions of a subagent of the listing agent

• If a buyer’s agent makes misrepresentations or fails to discover a property defect, the buyer would most likely sue the buyer’s agent for damages

• The buyer would have depended on the advice of their own agent and it would be difficult to prove they took unfair advantage of the buyer, under the doctrine of vicarious liability

• The buyer should be better informed and the purchase agreement has a better chance of becoming a firm contract leading to a mutually agreeable passing of title

Benefits to Parties

Beyond the buyer and seller benefits, there are benefits to the broker in a buyer agency. The broker enjoys:

• Greater client loyalty

• Avoidance of any conflict of interest; the responsibilities are clear to all sides

• Greater flexibility to develop a negotiating strategy – only one side’s interests are paramount and all efforts can go towards that goal

• Absence of liability for acts of the listing broker

Agency Agreement

When entering a relationship with a new client, an agent must decide what type of arrangement he or she wants and which would be suitable for a particular client and circumstances.

The agent must discuss the details of what their relationship will be. Disclosure and agreement should happen early in the relationship.

Once the type of agency is defined and agreed on, the terms should be reduced to writing.

Agency Agreement

Termination Date: There needs to be a specific term during which both parties are bound to each other by the agreement. The broker may want to include a clause to protect themselves if the buyer later buys certain properties shown during the time frame of the agreement.

Fees Structure

There are many possibilities for fee arrangements in a buyer agency situation.

• Retainer Fees are sometimes asked for by agents. This can help screen out buyers who are not serious in their commitment and are just shopping around.

• Seller Paid Fees are a common occurrence. Legally and morally, it is acceptable to have the seller pay all or part of a buyer’s broker fee.

• Buyer Paid Fees make clearer who is represented by the agent. It avoids any perception that may arise if the buyer agent fee is paid by the seller, even indirectly.

Fees Structure

Compensation doesn’t have to consist of the traditional commission that is based on a percentage of the sales price. Possibilities include the following:

• Hourly Rate: This arrangement implies that the agent is more of a consultant. The compensation will be based on professional services rendered on a non-contingent basis.

• Percentage Fee: There is nothing to prevent the traditional arrangement of charging a fee based on a percentage of a sales price. A percentage fee may also be employed in combination with an hourly rate.

• Flat fee: Some buyer’s brokers prefer a flat fee arrangement; contingent on their buyer closing title on a property while their agreement is in effect.

Purchase Agreements

If you are working as the buyer’s agent there are certain things that must be done differently in the purchase agreement.

• The amount of the earnest money deposit should be as low as possible; to be followed by a more substantial deposit after the terms are accepted.

• If the buyer is asking for private financing from the seller, make sure the terms are specific in the purchase agreement as to interest rates, terms, pre-payment penalties and grace periods, among other things.

• There should be some flexibility in the closing date to accommodate unseen circumstances that might occur

Purchase Agreements

• The seller should agree to correct any title defects, pay for any pest exterminations necessary and pay for any major repairs required.

• The buyer’s offer should be contingent upon professional inspections as required or deemed necessary and they should be able to cancel the purchase agreement in the event of negative results.

• Any contingency agreements should be written as to give the buyer sufficient time to perform. If the purchase is contingent on obtaining a mortgage, allow ample time for the processing and appraisal processes.

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Agency Disclosure and Current Trends

Seller Disclosure

The listing broker should disclose to the seller at the time of obtaining the listing such things as:

• Will it be listed in MLS?

• Will the listing be shared privately with other agents?

• Will other brokers become sub-agents of the listing agent?

• Will the listing broker be sharing fees with sub-agents or buyer’s agents?

Buyer Disclosure

A potential buyer’s broker should disclose certain items to a buyer, as soon as is practical.

• The broker should discuss all possible agency relationships and explain the implications of each. Then the agent must confirm the buyer understands the implications of any decision they make.

• Once an agreement is reached it should be immediately reduced to writing.

Disclosure Forms

Each state has its own format for disclosure; many have pre-approved forms that must be used to provide proper disclosure.

Keep in mind that disclosure forms are NOT brokerage agreements and are not binding contracts. The disclosure form simply offers proof that the licensee made the customer aware of their options in order for the customer to make an informed decision as to whether or not he/she would become a client.

Choice of Office Agency

You have choices to make as to how your office will operate under the various agency options.

Choice of Office Agency

•Seller Agency Only: You may choose to stick with the traditional method of representing only sellers.

•Buyer Agency Only: You don’t have to service listings at all, hold open houses, and run around with For Sale signs. However, one problem that could arise would be when you sold a buyer a house and then he needs to list the old house. You would be constrained from taking the listing and would have to let some one else handle it.

•Single Agency: Single agency firms are free to represent sellers and buyers but never on the SAME transaction.

•Single/Dual Agency: Some agencies have taken the posture that they would concentrate on single agency but allow dual agency with full disclosure and informed consent in those situations where another member of their firm represents a party who wished to buy an in-house listing.

Buyer Representation

These kinds of people would be good candidates for buyer representation.

• Buying for your own account

• Helping buy for a friend/relative/business associate

• First time homebuyers

• Investors

• Builders

•Anonymous buyers

Seller Representation

These kinds of people would be good candidates for seller representation.

• Helping sell for a friend/relative/business associate

• Seller is a recent client

• Buyer is particularly knowledgeable or experienced in buying and selling

• Agent is not trained as a buyer agent

• Buyer has an agent


Who is responsible for the acts of associated agents if there is a lawsuit or other trouble?

A. The Agent

B. The Broker

C. Neither

D. Both


Agent Supervision

The answer is both.

The agent is ultimately responsible for his or her actions, but don’t believe that the broker will come out of the situation completely unscathed.

Holley v. MeyerCase Study

Holleys were seeking to purchase a home. One of the Holleys was African American. The Holleys made an offer to purchase a house that was listed by Triad Realty. Triad Realty also represented the Holleys. One of Triad’s agents, Grove Crank, had allegedly committed a discriminatory act against the Holley couple under the Fair Housing Act. The Holleys filed suit against the owner of Triad Realty (David Meyer), the company itself, and also the Agent, Grove Crank.

Holley v. MeyerCase Study

How do you think the case turned out?

Use the public chat section to give your answer.

Holley v. MeyerCase Study - Answer

There was never a dispute about the discrimination in this case. Grove Crank had indeed committed a violation of the Fair Housing Act. The big question here was about who could be considered liable. Could the owner of the company (who was also the designated broker) be liable for acts that he was not even aware of?

The district court dismissed charges against Mr. Meyer (the owner) and found Mr. Crank (the agent) liable. BUT, our court system has the court of appeals. The Holleys appealed this ruling and won. The appellate court reversed the ruling and held that Mr. Meyer was indeed liable for the acts of Mr. Crank because as the owner and designated broker he had the “right to direct or control, the conduct of another in a residential real estate transaction.”

Responsibility to Train and Supervise

So, how do we prevent situations like the case of Holley v. Meyer from happening to us?

Brokers have the responsibility to train and supervise their employees. All real estate agents should be made well aware of the laws and also should have a respect for the ramifications of breaking these laws.

When the actions of your employees can affect your business and livelihood, it is crucial to make sure that you are employing only the highest quality professionals.

Employee Handbook

One of the best ways for a broker to protect himself and his company is to have an employee manual in which the office policies and procedures are clearly spelled out.

Some topics that an employee handbook should cover are:

• Fair Housing Summary

• REPSA

• Agency

• Advertising

• Commission Splits

• Sexual Harassment

• Agent Websites

• What happens to listings when they leave the firm

• DNC Rules

• Escrow Management

• MLS Policy

• E & O Insurance

Independent Contractors vs. Employees

What’s the difference?

The main distinction between an employee and an independent contractor is the way they are paid.

Independent Contractors only receive payments when he/she completes a sales that produces income.

Employees sign an employment contract that outlines how he or she will be paid.

The other main distinction is for tax purposes

The IRS will only treat agents as independent contractors when they meet all three of the following requirements:

Must be a licensed agent

A large percentage of the agent’s income is based on services performed, rather than hours worked

A written agreement is in place between the agent and the broker stating that the agent will be treated as an independent contractor for tax purposes.

Commission and Fees

Each brokerage will have some type of compensation plan.

Some firms may choose a graduated payment plan, some may pay their agents 100% of the sales commission but charge monthly fees.

The percentage of the commission that an agent receives may hinge on two things:

• Their experience

• The types of splits that the competition is offering their agents

An additional thing that a brokerage will need to consider is the services that they offer for agents.

For example: who pays for advertising, errors and omissions insurance, transaction processing, business cards, yard signs, etc.

Procuring Cause

A broker is entitled to a commission if they can prove the sale was made primarily by the efforts they put forth in that sale.

For example: If a broker showered a home with an open listing to a buyer, but the buyer when directly to the owner to make the deal, the broker is still entitled to a full commission.

Protection Clause

This clause (aka: a safety clause) entitles the broker to collect a commission after the listing expires or is cancelled. In order for the clause to provide protection to the broker the following must occur:

• The broker must submit a list of names to the owner of all the prospective buyers that they showed the property to.

• The clause must specify a certain amount of time after the listing expires for this clause to provide protection

For example: Agent John showed the Andersons a home in February. The listing agreement expired on March 1. The protection clause was set for 90 days after the listing expired. The Andersons approached the sellers privately a few days after the listing expired and offered to purchase the home minus the commissions. The seller was eager to sell his house, so he accepted the offer without considering the protection clause, and was surprised when Agent John contacted him about his commission. According to their original agency agreement, Agent John is perfectly within his rights to demand a full commission from this sale

Protection Clause

This clause (aka: a safety clause) entitles the broker to collect a commission after the listing expires or is cancelled. In order for the clause to provide protection to the broker the following must occur:

• The broker must submit a list of names to the owner of all the prospective buyers that they showed the property to.

• The clause must specify a certain amount of time after the listing expires for this clause to provide protection

For example: Agent John showed the Andersons a home in February. The listing agreement expired on March 1. The protection clause was set for 90 days after the listing expired. The Andersons approached the sellers privately a few days after the listing expired and offered to purchase the home minus the commissions. The seller was eager to sell his house, so he accepted the offer without considering the protection clause, and was surprised when Agent John contacted him about his commission. According to their original agency agreement, Agent John is perfectly within his rights to demand a full commission from this sale

QUESTIONS?

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Documents

Agency Law Version 7.11. Learning Objectives Upon completion of this course, participants will be able to: Understand how common law affects real estate