Unit 1 - License Law & Agency
.I. Introduction to Agency
Agency is a legal relationship where one party (the agent) acts on behalf of another (the principal/client) in dealings with third parties. It is important to distinguish between a Client (whom you represent and owe fiduciary duties) and a Customer (whom you treat with fairness and honesty but do not represent).
Licensure vs. Agency: Holding a license allows you to practice, but Agency is the specific legal "umbrella" that governs your behavior during a transaction.
Agency vs. Brokerage: They are not synonymous. Brokerage is the business of bringing parties together; Agency is the legal relationship of trust between the broker and the principal.
II. Fiduciary Responsibilities (The "OLD CAR" Acronym)
When you represent a client, you are a Fiduciary. In New York, you owe your client six specific duties:
Obedience: You must follow all lawful instructions of your client.
Loyalty: You must put the client's interests above all others, including your own.
Disclosure: You must reveal all material facts regarding the property or the transaction.
Confidentiality: You must keep the client's secrets (like their "bottom line" price) forever, even after the agency ends.
Accounting: You must account for all money and property entrusted to you. Commingling is a major violation.
Reasonable Skill and Care: You must perform your duties with the level of competence expected of a professional.
III. Creation and Scope of Agency
Agency can be created through:
Express Agreement: A written contract (like a Listing Agreement).
Implied Agency: Created by the actions or words of the parties. Warning: This can lead to unintended liability.
Ratification: Accepting the benefits of a previous unauthorized act.
Estoppel: When a principal leads a third party to believe someone is their agent.
Anti-Trust Issues (Sherman Anti-Trust Act): Real estate commissions are always negotiable. The following are illegal:
Price Fixing: Brokers conspiring to set standard commission rates.
Group Boycotting: Agreeing to not do business with a specific competitor.
Market Allocation: Dividing territories or "turf" between firms.
Tie-in Arrangements: Requiring a client to buy one service to get another.
IV. Agency Alternatives & Relationships
Seller’s Agent: Represents the seller.
Buyer’s Agent: Represents the buyer.
Broker’s Agent: An agent who assists the listing broker but has no direct relationship with the client. The client is not vicariously liable for the broker's agent.
Subagent: An agent of an agent. Historically, all "cooperating" brokers were subagents of the seller. Today, this is rare as most represent the buyer.
Dual Agency: Representing both buyer and seller in the same transaction. This is legal in NY only with written Informed Consent from both parties.
Designated Sales Agent: A form of dual agency where the broker appoints one salesperson to represent the seller and another to represent the buyer. This allows each client to have a dedicated advocate.
V. Section 443: Disclosure and Forms
New York Real Property Law Section 443 requires that the NYS Agency Disclosure Form be presented at the First Substantive Contact.
First Substantive Contact: This occurs when a conversation shifts from the "factual" (house features) to the "confidential" (buyer's budget or seller's motivation).
Refusal to Sign: If a party refuses to sign the form, the agent must:
Complete a Declaration/Affidavit stating the facts of the refusal.
Maintain the record for 3 years.
Listing Agreements:
Exclusive Right to Sell: The broker gets paid regardless of who finds the buyer. (Most Protective).
Exclusive Agency: The broker gets paid unless the owner finds the buyer.
Open Listing: Only the broker who brings the buyer gets paid.
⚠️ EXAM ALERT: QUICK FACTS
The "First Substantive Contact" Trap: You do not need the form signed just to walk someone through an Open House, but you must present it before they tell you they "have to move by next month because of a divorce."
Undisclosed Dual Agency: This is illegal and results in the loss of commission, possible license revocation, and the transaction being rescinded.
Vicarious Liability: A principal (client) can be held responsible for the actions of their agent. This is why many sellers reject subagency.
Regulation 175.7: Requires brokers to disclose to all parties if they are receiving compensation from more than one source (e.g., getting a referral fee from a mortgage broker).
KEY TERMS
Accountability: A fiduciary duty requiring the agent to account for all money and property of the principal.
Advance consent to dual agency: Written permission given by a client in the Agency Disclosure form to allow the broker to represent both parties in a future transaction.
Advance consent to dual agency with designated sales associate: Permission for the broker to appoint specific agents to represent each party in a dual agency situation.
Agency disclosure form: A mandatory DOS form used to clarify the relationship between the consumer and the agent at the first substantive contact.
Agent: One who is authorized to act on behalf of another (the principal).
Broker's agent: An agent who cooperates with a listing broker but does not have a direct relationship with the seller.
Buyer agent: An agent who represents the interests of the buyer in a transaction.
Client: The principal to whom the agent owes fiduciary duties.
Confidentiality: A fiduciary duty requiring the agent to keep the principal's private information secret even after the agency ends.
Cooperating agent: A broker from another firm who assists the listing broker in finding a buyer.
Customer: A party in a transaction who is not represented by an agent (the person you "work with" rather than "work for").
Designated sales agent: A license holder appointed by the broker to represent a specific client in an in-house dual agency transaction.
Disclosure: A fiduciary duty requiring the agent to inform the principal of all relevant facts regarding the transaction.
Dual agency: A situation where a single broker represents both the buyer and the seller in the same transaction.
Estoppel: A legal doctrine preventing a person from denying an agency relationship that they previously allowed to exist through their actions.
Exclusive agency: A listing agreement where the broker is the only agent authorized to sell, but the owner retains the right to sell personally without paying a commission.
Exclusive right to sell: A listing agreement where the broker earns a commission regardless of who sells the property.
Expressed agency: An agency relationship created by a clear oral or written agreement.
Fiduciary: A person in a position of trust who owes specific legal duties to another.
Fiduciary duties: The collective responsibilities (OLD CAR: Obedience, Loyalty, Disclosure, Confidentiality, Accountability, Reasonable Care) owed to a principal.
First substantive contact: The trigger point at which an agent must provide the Agency Disclosure Form (usually when specific financial or property needs are discussed).
General agent: An agent authorized to handle all affairs of the principal for a specific business or at a specific location (e.g., a property manager).
Group boycott: An illegal agreement between competitors to refuse to deal with a specific third party (Antitrust violation).
Implied agency: An agency relationship created by the actions and conduct of the parties rather than a written contract.
Informed consent: Agreement by a party to a contract after receiving full disclosure of all facts and risks.
Landlord’s agent: An agent representing the owner/landlord of a rental property.
Loyalty: A fiduciary duty requiring the agent to put the principal's interests above all others, including their own.
Market allocation: An illegal agreement between brokers to divide a territory or area (Antitrust violation).
Misrepresentation: A false statement of a material fact.
Obedience: A fiduciary duty requiring the agent to follow all lawful instructions of the principal.
Open listing: A non-exclusive listing where only the broker who is the procuring cause of the sale earns a commission.
Price fixing: An illegal agreement between competitors to set fixed commission rates (Antitrust violation).
Principal: The person (client) who hires the agent to represent them.
Reasonable care: A fiduciary duty requiring the agent to use their skills and expertise to protect the principal from harm.
Self-dealing: An illegal act where an agent profits from a transaction without disclosing it to the principal.
Seller's agent: An agent who represents the interests of the seller.
Special agent: An agent authorized to perform a specific act or transaction (e.g., a real estate broker hired to sell a house).
Subagent: An agent of an agent; someone who performs duties for the principal under the authority of the primary broker.
Tie-in arrangement: An illegal agreement where the sale of one product is conditioned on the purchase of a second product (Antitrust violation).
Undivided loyalty: The requirement that an agent must not have any conflicting interests that would interfere with their duty to the principal.
Undisclosed dual agency: An illegal situation where a broker represents both parties without their knowledge or written consent.
Vicarious liability: The legal responsibility one person has for the actions of another (e.g., a seller being liable for the broker's actions).
-
Add a short summary or a list of helpful resources here.