REAL ESTATE AGENCY IN CONNECTICUT A Three Hour Continuing Education Module September 2002

REAL ESTATE AGENCYIN CONNECTICUT

A Three HourContinuing Education Module

September 2002

Agency CE Course - 2002 2

Credits The Connecticut Real Estate Commission has made Agency a

mandatory course for the continuing education cycle ending in 2004. This module was developed by Katherine A. Pancak, Associate

Professor in Residence of Finance and Real Estate at the University of Connecticut, with funding from the Center for Real Estate and Urban Economic Studies, University of Connecticut.

Special thanks are extended to the following individuals for the valuable contributions, insights and assistance:

Adorna Carroll, Owner and Instructor, Dynamic Directions, Inc. Laurence L. Hannafin, Hannafin Consulting Donna Hohider, Vice-Chairperson, Connecticut Real Estate Commission Ted Mansfield, Administrator, New Haven Real Estate School Eugene A. Marconi, General Counsel, Connecticut Association of Realtors, Inc. Laureen Rubino, Real Estate Examiner, CT Department of Consumer Protection Teresa Sirico, Teresa Sirico Realtor LLC Fred Southwell ABRM, CRB, GRI, Southwell Education


Course Reference Materials

Connecticut Real Estate Commission Policy on Agency, Adopted 1.6.00

C.G.S. Section 20-325d – Disclosure of Representation

C.G.S. Section 20-325f – Broker Subagency, Written Consent Required

C.G.S. Section 20-325g – Dual Agency Consent Agreement

Connecticut Regulations Concerning Designated Agency

Connecticut Regulations Section 20-328-9a – Interfering With Agency Relationships


Course Overview Agency Pretest General Agency Theory Critical Agency Issues Agency in Practice Agency Pretest Revisited


Agency PretestTrue or False

An Agency Disclosure Notice is given to an unrepresented buyer or seller.

An agent can not work with a prospective buyer unless the buyer signs a buyer agency agreement.

In order to represent a buyer, a buyer agency agreement must be signed before a property is shown to the buyer.

Sub-agency is illegal in Connecticut. A dual agent is required to act in the best interests of both the seller

and the buyer. Dual agency consent can be obtained at the time an agency

agreement is signed. A designated agent only represents one party and is not a dual

agent. A brokerage firm representing two buyers interested in the same

property is not a dual agent.

GENERAL AGENCY THEORY


Agency Agent - Person who represents the interests of

another person (called the principal) when dealing with third parties.

CT real estate agency: the office broker is the agent. Additionally, all salespersons/brokers who work for that office broker are also agents of the principal.

Dual Agent - An agent that represents both the buyer and the seller in the same transaction.

CT real estate agency: if the office broker is a dual agent, all salespersons/brokers who work for that office broker are also dual agents.

C.G.S. Section 20-325g – Dual Agency Consent Agreement


Agency, continued Designated Agent – A dual agent that has

been designated to only represent one party. CT real estate agency: a dual agent office broker may

designate one salesperson/broker to represent the buyer and one to represent the seller (given the informed consent of buyer and seller)

Connecticut Regulations Concerning Designated Agency Subagent – A person authorized to assist an

agent to act on the principal’s behalf. CT real estate agency: a cooperating broker can only

act as a subagent of a seller if the seller consents to the subagency.

C.G.S. Section 20-325f – Broker Subagency


Agency in Real Estate Broker and Salespeople

Client

Customer

Agency created by written agreement

No written agreement, no agency


Agency Scope Property type

Residential Commercial

Transaction Purchase and Sale Leasing

Note – the course examples will be limited to residential purchase and sale transactions, however all agency concepts also apply to commercial transactions and leasing transactions.


Duties of Agent to Client FIDUCIARY

Loyalty Obedience Reasonable Skill and Care Accounting Disclosure Confidentiality

The agent must act for the benefit of the principal/client in all matters connected with the agency


Duties of Agent to Customer Non-fiduciary

Honesty No misrepresentation Disclosure of material property facts Accounting (for escrow monies)


Client v. Customer CLIENT

Agent must put client’s interests above her/his own.

Agent must follow lawful instruction of client. Agent must negotiate for best terms and

conditions for client. Conversations and information between agent and

client must remain confidential. CUSTOMER

Agent can assist but not advocate for customer. Conversations and information between agent and

customer not confidential (may have a duty to disclose to client).

CRITICAL AGENCY ISSUES


Determining Relationship Consumer enters into written agency

agreement Client relationship

Consumer declines to enter into written agency agreement Customer Relationship Disclose non-agency by providing

Real Estate Agency Disclosure Notice Given to Unrepresented Parties

Can only show in-house listings as seller’s agent (need subagency consent to show another firm’s listings to a customer).


What happens…? Buyer has

approached Agent about viewing properties. Buyer is hesitant about entering into a buyer agency agreement “at this early stage”.


…ResultAgent should Ask whether Buyer is currently being

represented by another firm. Explain Agent’s firm’s office policy on various

agency, dual agency, designated agency, and customer relationships that Agent could potentially have with Buyer.

Specifically tell Buyer not to provide confidential information unless and until Buyer and Agent have entered into an agency relationship.

IT IS NOT THE LAW THAT A BUYER MUST SIGN A BUYER AGENCY AGREEMENT – Agent can work with Buyer as a customer.


…Result, continuedWorking with Buyer as Customer Agent represents Seller

Must provide Buyer with Real Estate Agency Disclosure Notice Given to Unrepresented Parties (see C.G.S. Section 20-325d – Disclosure of Representation)

Can only show in-house listings Can give Buyer information on Property,

Agent’s firm, mortgage rate and lending institutions

Agent cannot Ask Buyer to disclose confidential

information Show property listed with another firm


Timing ofBuyer Agency Agreement Written agency agreement must be

signed before a licensee negotiates on behalf of buyer or seller.

Connecticut Regulations Section 20-328(a)(1) and (2) “Negotiate” means

Asking a consumer to disclose confidential information

Physically showing another firm’s listing Discussing an offer on another firm’s listing Connecticut Real Estate Commission Policy on

Agency, Adopted 1.6.00, Section 5


What happens…? Buyer calls Agent

and asks that Agent meet him at a property listed with another firm.


…ResultAgent should Ask whether Buyer is currently being

represented by another firm. Explain Agent’s firm’s agency policies. Explain that in order to show another

firm’s listing, a Buyer Agency Agreement must be entered into.

Arrange for a meeting where Agent can explain Buyer Agency more fully to Buyer.

Note that Agent could show Buyer an in-house in the capacity of the seller’s representative, after having provided Buyer with the Real Estate Agency Disclosure Notice Given to Unrepresented Parties.


Written Agency Agreement

Types

Agreement must accurately explain compensation arrangements.

SELLER BUYEROpen Listing Open Right to Represent

Buyer

Exclusive Agency Listing Exclusive Agency Right To Represent Buyer

Exclusive Right To Sell Listing

Exclusive Right To Represent Buyer


What happens…? Buyer is

interested in entering into a buyer agency agreement, but is unwilling to accept any financial responsibility.


…Result Written buyer agency

agreement must specifically and accurately explain compensation arrangement. Buyer has no obligation to pay a

fee under any circumstances. Buyer has obligation to pay a fee

only if Seller or Seller’s agent does not compensate Agent.

Buyer has obligation to pay a fee.


Handling the Possibility ofDual Representation Possibility of dual

representation should be addressed up front In listing agreement

with seller clients In buyer agency

agreement with buyer clients

Actual consent can not be obtained until both clients identified Dual Agency Designated Agency

If one client does not consent, can not represent both.


What happens…? Firm policy allows

representation of both buyers and sellers, so that a dual agency conflict may arise. At the time of her buyer agency consultation with Firm, Agent notifies Buyer of this possibility. Buyer asks Agent “what will happen if I am interested in making an offer on one of your in-house listings?”


…Result Agent should explain how Firm handles dual agency. “If you are interested in making an offer on an in-house listing, our

firm would be a dual agent. The firm would inform you of this situation before you write up the offer.”

“With your and the seller’s written consent, we could proceed in one of two ways. First the firm and all of its agents could act as dual agents representing both you and the seller. As a dual agent, the firm would have certain prohibitions against disclosure of confidential information about you to the seller and vice versa. Second, the firm could assign a designated agent within the firm to represent you, and another agent to represent the seller. While the firm would still be considered a dual agent, your designated agent would owe full loyalty to you.”

“If either you or the seller do not agree to either of these options, the firm would have to terminate our agency agreement with one of you.”


Dual Agency:Representing Buyer and SellerFirm MUST Obtain written consent for DUAL

AGENCYOR

Obtain written consent for DESIGNATED AGENCY

OR DECLINE REPRESENTATION of one of

the clients (option should have been provided for in agency representation agreement)


Dual Agency: Acting as a Dual Agent

Both clients MUST give their written informed consent

Fiduciary to both clients still owe all fiduciary duties

Additional confidentiality requirements - can not disclose

unless client gives express written consent to disclosure personal or confidential information about one client to the other motivation of either client that seller would accept less than listing price that buyer would pay more than offer price that either client would agree to financing terms other than

those offered still must disclose info required by law, such as about material

property defects


What happens…? Buyer has entered into

buyer agency agreement with Firm and is now interested in making an offer on one of Firm’s in-house listings. Buyer and Seller signed Dual Agency Consent Agreement at the time they entered into their respective agency agreements.


…Result Before Buyer writes an offer, Firm must

disclose conflict with Buyer. Before Seller is presented with an offer,

Firm must disclose conflict with Seller. In order to proceed as dual agent, Firm

must obtain informed consent from both Buyer and Seller.

Informed consent can be obtained using state Dual Agency Consent Agreement.

If Firm proceeds as dual agent… review confidentiality requirements previous and next slides.


…Result, continued Dual Agency Consent Agreement

defines dual agent’s additional duties. Dual agent cannot disclose

Confidential information about one client to the other.

Unless required by law (material defects) or authorized by client whose information is disclosed.

This includes to Buyer that Seller will accept less than

the asking price to Seller that Buyer will pay more than

price submitted in written offer motivations for selling/buying


Dual Agency: Acting as a Designated Agent

Firm policy determines whether this option will be offered to clients.

Only allowed if both parties give their written consent – obtained using Dual Agency/Designated Agency Disclosure Notice and Consent Agreement.

Firm appoints one agent to represent Buyer and one agent to represent Seller. Brokerage firm still considered dual agent

Designated agent not deemed dual agent. Owes fiduciary duties Can use confidential info about other party obtained

after appointment


What happens…? Buyer has entered

into buyer agency agreement with Firm and is now interested in making an offer on one of Firm’s in-house listings. Buyer has agreed in writing to designated agency. Seller will not agree to any type of designated or dual agency.


…Result Firm can not proceed as a

designated agent if both Buyer and Seller do not agree in writing.

Firm can not assign a designated agent for just one of the parties.

Firm must terminate either Seller or Buyer’s agency agreement (can refer to another firm), and proceed only representing one of the parties.


Representing Competing Clients:Buyer v. Buyer / Seller v. Seller

Not dual agency. Must provide notice in agency

agreement that firm may represent competitors. Listing Agreement – notice that firm

may represent other sellers competing for buyers

Buyer Agency Agreement – notice that firm may represent other buyers competing for same property


What happens…? Firm represents

Buyer 1 and Buyer 2, who are both interested in making an offer on the same property. Can Firm proceed in representing both of these competitors?


…Result Buyer 1 and Buyer 2 have competing

interests. This is not the same as dual agency,

where clients have adverse interests (e.g. buyer v. seller), so dual agency consent is not required.

Firm can represent both clients, as long as they were both notified that Firm has the right to represent competing interests.

Firm should advise both Buyers to make their best offer, and inform that that seller will make ultimate decision.


Confidential Information Cannot reveal confidential information

about a client at any time before or after an agency relationship. Can’t use info about past clients to that

person’s disadvantage or to the advantage of another

Confidential info = facts concerning person’s Assets, liabilities, income, expenses Motivations to purchase, rent or sell Previous offers received or made that are not a

matter of public record Not confidential

Matters of public record or common knowledge


What happens…? Agent’s listing

agreement with Seller has terminated. When Agent represented Seller, Seller stated that he would accept $10,000 less than property’s listing price. Seller has now listed property with another firm. Agent now represents Buyer who is interested in Seller’s property.


…Result Agent can not disclose to Buyer

that Seller will accept less than the listing price of the property.


Interfering withAgency Relationships A licensee can not interfere with the

agency relationship of another licensee. Connecticut Regulations Section 20-328-9a

Interfering includes Encouraging a person to break an exclusive

agency agreement with another firm. Advising a person on how to break an exclusive

agency agreement with another firm.


What happens…? Buyer approaches

Agent about a property. Buyer states that she has previously signed a buyer agency agreement with another firm, but now wants to work with Agent.


…Result Agent can not encourage or

advise Buyer to break buyer agency agreement with other firm. Penalty – loss of license, fine

Agent can only suggest that Buyer talk to other firm or to Buyer’s attorney if she wishes to terminate an agency relationship.

AGENCY IN PRACTICE

Case Studies


Agency in PracticeCase Study 1

Alex, a salesperson with Right Realty, is hosting an open house at property listed with Right Realty.

Does Alex need to notify potential buyers that he and Right Realty represent the seller?

How should Alex proceed with a potential buyer that wants to discuss the house?


Case Study 1 Discussion Points

Agency disclosure at an open house can be made through a sign, poster, or pamphlet.

Prior to any discussion concerning a buyer’s specific real estate needs, Alex should ask buyer whether he/she has signed an agency agreement with a real estate firm.

If yes, the buyer is represented. No further agency disclosure is needed. Alex should refer buyers to their agent for

discussion/questions on the property. If buyer is not represented

written disclosure must be made using the Real Estate Agency Disclosure Notice Given to Unrepresented Parties (indicating that Right Realty represents seller), OR

Alex can discuss entering into a written buyer agency agreement (in which case Right Realty represents buyer; also seller as to this house).


Agency in PracticeCase Study 2

Barb and Bob Breyer set up a meeting with Alex to discuss a house that they saw in the paper listed with Right Realty. The Breyers state that they may also be interested in other houses in that neighborhood too, and have a lead on a for-sale-by owner property.

How should Alex proceed at this meeting with the Breyers?


Case Study 2 Discussion Points

Prior to any discussion concerning the Breyers’ specific real estate needs, Alex should ask buyer whether they have signed an agency agreement with another real estate firm.

If yes, Alex should refer Breyers to their agent for discussion/questions on the properties they are interested in.

If the Breyers are not currently represented by another firm, Alex should discuss representation options.

Alex can work with the Breyers as CUSTOMERS. No agency agreement. Alex represents sellers of in-house listings; can only show in-house

listings. Real Estate Agency Disclosure Notice Given to Unrepresented Parties

Alex can work with the Breyers as CLIENTS. Written agency agreement required. Alex represents Breyers; can show in- and out- of house listings.


Agency in PracticeCase Study 3 Barb and Bob Breyer entered into

a buyer agency agreement with Right Realty. After looking at many properties, they tell Alex that they would like to make an offer on a house. The house the Breyers are interested in is listed with Right Realty.


Case Study 3Discussion Points

Before Alex assists the Breyers in writing an offer, Alex must disclose the dual agency conflict with them.

Depending on Right Realty policy, Alex can offer the Breyers either dual agency or designated agency representation.

In order to proceed as dual/designated agent, Firm must also obtain informed written consent from both the Breyers and the seller.

Review confidentiality requirements from previous slide.


Agency in PracticeCase Study 4 Barb and Bob Breyer entered into a

buyer agency agreement with Right Realty. After looking at many properties, they tell Alex that they would like to make an offer on a house. The house the Breyers are interested in is for sale by owner.

How would Alex and Right Realty be compensated in this transaction?


Case Study 4Discussion Points

Alex should review the Breyers’ buyer agency agreement

Does it provide that (1) Right Realty have an obligation to work w/the Breyers in a FSBO, and (2) that the Breyers’ will pay a fee in this instance?

If yes to either or both, Alex should remind the Breyers that this will be the case.

If no to either or both, how will Right Realty be compensated?

Can Alex seek a listing agreement providing for compensation from the seller?

Should discuss this first with the Breyers as it will cause dual agency.


Agency Pretest RevisitedT The Agency Disclosure Notice is given to an unrepresented buyer or

seller.

F An agent can not work with a prospective buyer unless the buyer signs a buyer agency agreement.

T In order to represent a buyer, a buyer agency agreement must be signed before a property is shown to the buyer.

F Sub-agency is illegal in Connecticut.

T A dual agent is required to act in the best interests of both the seller and the buyer.

F Dual agency consent can be obtained at the time a listing agreement or buyer agency agreement is signed.

T A designated agent only represents one party and is not a dual agent.

T A brokerage firm representing two buyers interested in the same property is not a dual agent.

Documents

REAL ESTATE AGENCY IN CONNECTICUT A Three Hour Continuing Education Module September 2002