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Modern Real Estate Practice in New York for Salespersons 11 th Edition

Chapter 2: Law of Agency


Lecture Outline

LEARNING OBJECTIVES:

Students should be able to


describe how agency is created and terminated, as well as the various forms of
agency;
describe the rights, duties, and responsibilities of each party in an agency
relationship;
describe the relationship between the salesperson and the principal broker;
describe the relationship between the salesperson and the client;
describe the relationship between the salesperson and the customer;
explain basic antitrust laws; and
explain the fiduciary responsibilities of an agent.

KEY TERMS:

1. accountability: The agents fiduciary duty to account to the principal,


particularly for any money involved in the transaction.
2. Agency: The relationship wherein an agent is employed by a principal
to do certain acts on the principals behalf.
3. agency coupled with an interest: An agency relationship in which the
agent has an interest in the property.
4. Agent: One who undertakes to transact some business or to manage
some affair for another by authority of the latter.
5. attorney-in-fact: A person who has been given a power of attorney on
behalf of a grantor. The power must be recorded and end on the death
of the grantor.
6. Brokerage: The business of buying and selling for another for a fee.
7. buyers broker: A broker who has entered into an agreement to
represent a buyer (the brokers principal and client) in finding a
suitable property.

2011 Kaplan, Inc.


Modern Real Estate Practice in New York for Salespersons 11 th Edition

8. Clayton Act/Sherman Act: Antitrust Acts Federal legislation


prohibiting business practices that limit competition.
9. Client: The principal.
10.commercial transaction: Any transaction involving the sale or rental of
a building that contains five or more units intended for dwelling
purposes or for commercial or industrial use.
11.Commission: Payment to a broker for services rendered, such as in the
sale or purchase of real property; usually a percentage of the selling
price.
12.Confidentiality: An agents duty to keep the principals information
confidential.
13.cooperating agent: These are agents who, by agreement with the
listing agent's company, take on a "subagency" relationship, in which
they show the property to buyers on behalf of the seller or the seller's
listing agent.
14.Customer: A potential buyer of real estate; should not be confused
with a property seller (i.e., listing brokers client).
15.Disclosure: A broker is responsible for keeping a principal fully
informed of all facts that could affect a transaction. A broker who fails
to disclose such information may be liable for any damagers that
result.
16.dual agency: When a buyer is represented by the same brokerage firm
that has the listing, it is called dual agency. When one agent represents
both the buyer and the seller in one transaction, it is also called dual
agency

2011 Kaplan, Inc.


Modern Real Estate Practice in New York for Salespersons 11 th Edition

17.estoppel: The situation in which a party is prevented by the partys


own acts from taking a different position because it would cause
detriment to another party.
18.express agency: An agency that is specifically stated orally or in
writing.
19.Federal Trade Commission (FTC): federal agency, established in
1914, that administers antitrust and consumer protection legislation in
pursuit of free and fair competition in the marketplace
20.Fiduciary: One in whom trust and confidence as between trustee and
beneficiary, attorney and client, or principal and agent.
21.fiduciary duties: The specific legal duties and agent owes to the
principal.
22.fiduciary relationship: A relationship of trust and confidence as
between trustee and beneficiary, attorney and client, or principal and
agent.
23.first substantive contact: The point at which agents must disclose and
obtain signed acknowledgements of their agency relationships.
24.Fraud: Deception that causes a person to give up property or a lawful
right.
25.general agent: One authorized to act for the principal in a specific
range of matters.
26.group boycott: An agreement among members of a trade to exclude
other members from fair participation in the activates of the trade.
27.implied agency: An agency established not by words but by the
actions of the parties.

2011 Kaplan, Inc.


Modern Real Estate Practice in New York for Salespersons 11 th Edition

28.informed consent: An agreement to an act based on the full and fair


disclosure of all facts a reasonable person would need in order to
make a rational decision.
29.latent defects: A hidden defect that is not discoverable by ordinary
inspection.
30.law of agency: The law that governs the relationships and duties of
agents, clients, and customers.
31.listing agreement: A contract between a landowner (as principal) and a
licensed real estate broker (as agent) by which the broker is employed
as agent to sell real estate on the owners terms within a given time,
for which service the landowner agrees to pay a commission of fee.
32.Loyalty: The fiduciary duty that requires an agent to put the
principals interest above all others, including the agents.
33.market allocation: An agreement among members of a trade to refrain
from competition in specific areas.
34.meeting of the minds: An essential component of a valid contract, a
meeting of the minds occurs when all parties agree to the exact
terms.
35.Misrepresentation: A false statement or concealment of a material fact
made with the intent of causing another party to act.
36.multiple listing service: A marketing organization composed of
member brokers who agree to share their listing with one another in
the hope of procuring ready, willing, and able buyers more quickly
and efficiently.
37.Obedience: The agents fiduciary duty to obey all lawful instructions
of the principal.

2011 Kaplan, Inc.


Modern Real Estate Practice in New York for Salespersons 11 th Edition

38.power of attorney: A written instrument authorizing a person, the


attorney-in-fact, to act as agent on behalf of another person.
39.price-fixing: An agreement between members of a trade to artificially
maintain prices at a set level.
40.Principal: (1) A sum lent or employed as a fund or an investment as
distinguished from its income or profits. (2) The original amount (as
in a loan) of the total due and payable at a certain date. (3) A main
party of a transaction; the person for whom the agent works.
41.procuring cause of sale: The effort that brings about the desired result.
Under an open listing the broker who is the procuring cause of the
sale receives the commission.
42.Puffing: Exaggerated or superlative comments or opinions not made
as representation of fact and thus not grounds for misrepresentation.
43.Ratification: The situation in which a party is prevented by his own
acts from taking a different position because it would cause detriment
to another party.
44.ready, willing, and able buyer: One who is prepared to buy property
on the sellers terms and is ready to take positive steps to consummate
the transaction.
45.reasonable care: A brokers duty to perform duties properly.
46.residential transaction: Any transaction involving the same or rental of
a building that contains four to fewer units intended for dwelling
purposes.
47.restraint of trade: The unreasonable restriction of business activities as
the result of the cooperation or conspiracy of members of the trade.

2011 Kaplan, Inc.


Modern Real Estate Practice in New York for Salespersons 11 th Edition

48.sellers agent: Broker or agent who advises seller on a fair listing


price, gives hints how the seller can enhance the marketability of the
house, and shows property to several buyers.
49.self-dealing: The act of a broker who lists property and then buys it
and collects the agreed-on commission.
50.Sherman Act: Antitrust Acts Federal legislation prohibiting business
practices that limit competition.
51.special agent: One authorized by the principal to perform a single act
or transaction.
52.Subagent: A brokers sales associate in relation to the principal who
has designated the broker as an agent.
53.tie-in arrangements: An arrangement by which provision of certain
products or services is made contingent on the purchase of other,
unrelated products or services.
54.undisclosed dual agency: Representation of both principal parties in
the same transaction without full written disclosure to and approval of
all parties.
55.undivided loyalty: Fiduciary duty owed by the agent to the principal
or client.
56.universal agent: One empowered by a principal to represent him or
her in all matters that can be delegated.

2011 Kaplan, Inc.


Modern Real Estate Practice in New York for Salespersons 11 th Edition

LECTURE OUTLINE:

I. KEY TERMS
II. OVERVIEW OF AGENCY DISCUSSION
III. WHAT IS AN AGENT?
A. Types of agents
IV. CREATION OF AGENCY
A. Express agency
B. Implied agency
1. Compensation.
V. AGENCY AND BROKERAGE
A. Importance of agency law to licensees
1. Whom does the agent represent?
B. Seller as principal
C. Buyer as principal
D. Broker as principal
E. Basic agency relationships
1. Compensation from more than one party in a transaction
2. Dual agency
3. Self-dealing
VI. FIDUCIARY RESPONSIBILITIES
A. Care
B. Confidentiality
C. Loyalty
D. Obedience
E. Accounting
F. Disclosure
G. Breach of fiduciary duties
H. Scope of authority
I. Agents responsibilities to other parties in the transaction
1. Opinion versus fact
2. Misrepresentations
3. Environmental concerns
4. Latent defects
5. Stigmatized properties
6. Megans Law
VII. THE BROKERS COMPENSATION
A. Salespersons compensation
VIII. TERMINATION OF AGENCY
IX. ANTITRUST
X. ANTITRUST LAWS
A. History of antitrust laws
B. Price-fixing
C. Group boycott
D. Market allocation
E. Tie-in arrangement

2011 Kaplan, Inc.


Modern Real Estate Practice in New York for Salespersons 11 th Edition

1. Penalties for violating antitrust laws


XI. SUMMARY
XII. CHAPTER 2 QUIZ

2011 Kaplan, Inc.