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California Real Estate Chapter 8

Terms in this set (131)

"Most agencies are created by express agreement (written or oral) between the principal and agent. Consideration is not required for an agency agreement.

A listing agreement or a buyer agency agreement is an express agreemnt.

Another example is a power of attorney.

In a power of attorney, a principal appoints another person to act as his attorney in face and cary out actions specified in the document.

1. The principal appoints someone to act as his agent, and the agent accepts the appointment.

The agreement doesn't have to be in writing in order to create a valid agency relationship.

2. The agency agreement also doesn't have to be supported by consideration.

Agency rights, responsibilities, and liabilities arise even when the principal has no contractual obligation to compensate the agent for the services rendered."

Ex. "If a broker doesn't have a written listing agreement with a seller, the broker can't sue the seller for compensation. Yet even without a written agreement, the broker still may be the seller's agent, with all of the duties and liabilities that agency entails."

An agency agreement must meet some, but not all, of the requirements for a valid contract.

Both parties must consent to the agency, both must be legally competent, and the purpose of the agency must be lawul.

However consideration is not required.

So an agency relationship can exist even when the principal isn't compensating the agent for her services.

An oral agreement can create a valid agency relationship. The agency begins as soon as the parties agree to it.

Note, however, that a broker is not entitiled to sue a client for compensation unless their agreement is in writing.
An agent owes third parties the duty of good faith and fair dealing.

The agent must not make false or misleading statements, even if it would benefit her principal.

"Real estate agents are legally as well as ethically required to treat third parties fairly.

When representing a seller, an agent must disclose all material facts about the property to prospective buyers.

The agent also must avoid inaccuracies in statements to prospective buyers.

Any intentional material misrepresentation may constitute actual fraud, and even an unintentional misrepresentation could be considered negligence or constructive fraud.

Whether the misrepresentation was intentional or not, the buyer might have the right to rescind the transaction and/or sue for damages.

(Note that these requirements apply to sellers as well as their real estate agents; sellers also have a duty to disclose material facts about the property to buyers and avoid misrepresentations.)"

"A distinction is generally drawn between misrepresentations, on the one hand, and opinions, predictions, or "puffing," on the other.

These are nonfactual or exaggerated statements that a buyer should realize she can't rely on.

Since it isn't reasonable to rely on them, opinions, predictions, and puffing generally aren't actionable—in other words, they can't be the basis for a lawsuit."

"Although statements such as these may not be actionable, it's unethical for a real estate agent to make any statement to a buyer concerning the property that the agent doesn't believe.

Also, something an agent regards as harmless "sales talk" could be understood as a statement of fact by an unsophisticated buyer, and a court might decide it is actionable.

For instance, an agent who made the prediction about a dramatic increase in property values given in our example could be on dangerous ground."
"At one time, agents representing the seller were required only to pass on the seller's information about the property to prospective buyers; the law didn't require them to inspect the property and look for problems.

Today, however, California law specifically imposes a duty of inspection on any agent who represents the seller of a one- to four-unit residential property, unless it's a new home in a subdivision offered for sale for the first time.

The duty also applies to agents who cooperate with a seller's agent in finding a buyer for such a property.

To fulfill this duty, an agent must conduct a reasonably competent and diligent visual inspection of the property and disclose to prospective buyers any material information the inspection reveals.

Stating that the property is for sale "as is" doesn't negate the agent's duty to inspect it and disclose material facts about its condition.

The agent isn't required to inspect areas of the property that aren't reasonably accessible to visual inspection.

In the case of a condominium or cooperative unit, the agent is only required to inspect the unit being sold, not the common areas.

If an agent fails to inspect residential property and make disclosures as required, and the buyer is harmed as a result, the buyer can sue the agent and her broker.

A lawsuit based on the duty to inspect must be filed within two years after the buyer takes possession of the property.

It should be noted that the agent's duty to inspect the property doesn't relieve buyers of the duty to use reasonable care to protect themselves."
In a residential transaction, the buyer is entitled to a real estate transfer disclosure statement.

The form is filled out by the seller, the listing agent, and the agent who obtains the offer.

It is the responsibility of the agent who obtains the offer to give the disclosure statement to the buyer.

"Any disclosures required as a result of an agent's property inspection are usually made in the appropriate section of the real estate transfer disclosure statement, a form that must be presented to the prospective buyer in any transaction involving one- to four-unit residential property.

The transfer disclosure statement is used to list the seller's disclosures concerning:

-what's included in the sale;
-any known defects in the property; and
-any other problems with the property, such as environmental hazards, structural changes made without appropriate permits, or neighborhood nuisances.

In addition, the form has separate sections to be filled out by the listing agent and the selling agent (the agent who obtained the buyer's offer).

Each agent is required to make note of any material facts discovered in his or her own visual inspection of the property; the listing agent is also required to disclose material facts about the condition of the property learned from the seller.

The selling agent is responsible for providing the completed disclosure statement to a prospective buyer.

It's important to remember that an agent should fill out only her own section of the form, not the seller's sections.

Filling out those sections is the seller's responsibility."

"The transfer disclosure statement should be delivered to buyers as soon as possible.

The law gives buyers 3 days from the time the disclosure statement is delivered (or 5 days from the time it is mailed) to rescind the purchase agreement, if they decide they don't want to purchase the property after all.

Some transactions involving one- to four-unit residential property don't require a transfer disclosure statement.

These include transfers that occur as a result of a mortgage or deed of trust foreclosure, probate proceedings, divorce settlements, or other court orders.

Sales of property in new subdivisions are also exempt.

In some cities and counties, local laws require sellers to give buyers a local option transfer disclosure statement in addition to the state-required transfer disclosure statement.

A local option statement provides information about the neighborhood or community."
If a real estate agent breaches a duty either to her principal or to a third party, the injured party may file a tort suit against the agent.

The court may order the agent to pay compensatory damages.

Whether or not there is a lawsuit, the Department of Real Estate may suspend or revoke the agent's real estate license.

"If a licensee breaches any duties owed to either a principal or a third party, it's considered a tort."

"The party injured by the tort, whether it's the principal or a third party, is then entitled to sue for redress.

The most common remedy in a tort suit is compensatory damages.

A court will order the licensee to compensate the injured party for the financial loss he suffered.

This might include repaying any commission collected in a transaction.

The injured party may also be allowed to rescind the transaction.

If a licensee misrepresents property to a buyer, the buyer can sue the licensee and her broker in a tort action.

In addition, the buyer can sue the broker's principal, the seller.

That's because, according to the doctrine of vicarious liability, a principal is liable for torts committed by the agent within the scope of her agency.

So the seller could be held liable to the buyer even if the seller wasn't aware of the licensee's misrepresentations.

An innocent seller who has been held liable for his agent's misconduct could, in turn, sue the licensee and her broker.

Most breaches of duty by licensees are also violations of the California Real Estate Law.

The Department of Real Estate may take disciplinary action against a licensee and her broker even
An inadvertent dual agency may be created by implication; for example, when a real estate agent who's representing the seller acts as if he's representing the buyer. Unintentionally, the agent's behavior makes him a dual agent.

However, even though the subagency arrangement was well established, it was easy for a buyer to mistakenly believe that the selling agent was acting as the buyer's agent, not the seller's.

After all, the selling agent was working with the buyer on a continuous and usually friendly basis.

The agent would often encourage the buyer's loyalty by going out of his way to meet the buyer's needs.

As a result, the buyer often told the selling agent confidential information.

Yet because the selling agent was representing the seller, he had a duty to pass along that confidential information to the seller.

If the agent fulfilled that responsibility, the buyer might well be surprised and dismayed.

But in many cases, the selling agent would let his natural desire to help the buyer interfere with the fiduciary duties owed to the seller.

This confusion caused trouble for everyone, and sometimes resulted in the creation of an inadvertent dual agency."

-"As we've discussed, a dual agency may be created unintentionally.

In fact, many dual agency lawsuits involve an accidental or unintended dual agency in which the conduct of the seller's agent, or the personal relationship between the agent and the buyer, is such that an implied agency is created with the buyer.

An agent's best protection against inadvertent dual agency is to comply carefully with the agency disclosure requirements and then act in accordance with the disclosure, never forgetting which party she's representing."
Being represented by a buyer's agent gives a buyer the advantages of loyalty and confidentiality, objective advice, help with negotiating, and access to more homes.

"The chief advantages of buyer agency include:

-loyalty and confidentiality,

-objective advice, and

-help with negotiations.

A buyer's agent owes fiduciary duties to the buyer.

For many buyers, the duty of loyalty and confidentiality is the most important advantage of buyer agency."

"A buyer's agent can be relied upon to give the buyer objective advice about the pros and cons of purchasing a particular home.

He will point out various issues the buyer should be aware of, such as energy costs, the need for future repairs, and property value trends.

By contrast, a seller's agent will present the property in the most positive light and may use expert sales techniques to convince the buyer to sign on the dotted line.

Buyers often feel uncomfortable negotiating for a property, especially one they really want to buy.

They may be afraid to make a mistake through ignorance, or they may feel pressured to make a high offer quickly before someone else snaps up the property.

A buyer's agent can use her negotiating skills and intimate knowledge of the real estate market to help the buyer get the property on the best possible terms.

Another potential advantage of buyer agency is access to more homes.

A buyer's agent may arrange to be compensated if the buyer purchases any property, whether or not it's listed with a multiple listing service.

So a buyer's agent may pursue less traditional means of searching for properties, and may be more willing to show the buyer homes that are for sale by owner or have open listings."
The agency disclosure form is a general information form that explains the duties of a seller's agent, a buyer's agent, and a dual agent.

The listing agent must give the form to the seller before the listing is signed. The selling agent must give the form to the buyer before the offer is signed, and to the seller before the offer is presented.

"The first step in the disclosure process is providing an agency disclosure form.

This form gives a clear explanation of the duties of a seller's agent, a buyer's agent, and a dual agent.

An agent must give the parties the disclosure form and also have them sign a copy to acknowledge that they received it.

The listing agent must give a copy of the agency disclosure form to the seller before the seller signs the listing agreement.

The selling agent must give a copy to each party as soon as practicable; the buyer must receive it before signing the offer to purchase, and the seller must receive it before the offer is presented.

(If the selling agent isn't dealing with the seller directly, the selling agent's disclosure form may be delivered to the seller by the listing agent or by certified mail.)

In addition to giving the parties the general disclosure form explaining the different types of real estate agency relationships, each agent is required to disclose whether he or she is representing only the seller, only the buyer, or both the seller and the buyer in this particular transaction.

The agents must make their disclosures to the parties as soon as practicable.

Each agent's disclosures must be confirmed in writing by having the parties sign an agency confirmation statement before or at the same time that they enter into a contract.

An agency confirmation statement doesn't have to be a separate document; in most cases, a confirmation statement is included in the purchase agreement"
"For certain purposes, when one person hires another to work for him, the worker is classified either as the hirer's employee or as an independent contractor.

An independent contractor is hired to perform a particular task and generally uses his own judgment to decide how the task should be completed.

An employee, on the other hand, is hired to perform whatever tasks the employer requires and is usually told how to accomplish each task.

An employee is supervised and controlled much more closely than an independent contractor.

Various employment and tax laws apply only to employees and not to independent contractors.

A real estate broker is virtually always an independent contractor in relation to her principal (the buyer or the seller).

When it comes to the relationship between a broker and a salesperson, however, the distinction between employee and independent contractor has been more of an issue.

If a broker closely monitored and directed the activities of a salesperson, controlling how he carried out his work, the salesperson could be considered an employee in the eyes of the law.

Ex. If the broker required the salesperson to work on a set schedule, told the salesperson when to go where, and decided what steps the salesperson should take in marketing each property, a court might very well rule that the salesperson was the broker's employee."

"However, most brokers exercise much less control over a salesperson's work than that.

They generally focus on the end results—listings, closings, and satisfied clients—and not on the details of how the salesperson accomplishes those results.

A broker usually isn't concerned with where the salesperson is or what she's doing at any given time.

The salesperson is paid on the basis of results (by commission) rather than hours spent on the job.

Thus, in most cases, a salesperson is considered to be an independent contractor, not the broker's employee.

If a salesperson were an employee, the broker would be required to withhold money from the salesperson's compensation for income tax, social security, and unemployment insurance.

An independent contractor, on the other hand, is responsible for paying his own social security and income taxes, and doesn't have unemployment insurance.

The Internal Revenue Code provides that a real estate salesperson will be considered an independent contractor for income tax purposes if three conditions are met:

1. the individual is a licensed real estate salesperson;

2.substantially all of his or her compensation is based on commission rather than hours worked; and

3. the services are performed under a written contract providing that the individual won't be treated as an employee for federal tax purposes.

Note that classification as an independent contractor for income tax purposes doesn't affect worker's compensation requirements in California.

Real estate brokers are required to provide worker's compensation coverage for their commissioned sales staff as well as for salaried employees.