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In general, agency law agents can have one of two types of authority to conduct real estate-related activities on behalf of a principal, including actual authority or apparent authority.

Actual Authority

When a principal grants express or implied authority, the agent’s authority is called “actual.” Express authority comes in the form of express terms. This means that a verbal or written listing agreement gives a broker actual authority to list a property on an MLS, while implied authority is authorization to perform duties that have not been expressly authorized. For example a broker delegates a sales person to act on his behalf on carrying out the tasks of selling a property such as measuring square footage, taking pictures, putting a sign in the yard, ect.

Quick Quiz

Fill in the Blank:
When a principal grants express or authority, the agent’s authority is titled ““.

Apparent Authority

An agent has apparent authority when he or she does not have actual authority IE: the principal neglected to or purposefully allowed the appearance that the agent’s actions were authorized. A principal is obligated by duties performed within the scope of an apparent authority,

puzzle

but the claims of the agent alone do not establish apparent authority by themselves. To qualify, the principal must be made aware of the declaration or acts and make no effort to deny that they are authorized.

Suppose an agent has a conversation with a “would be” principal about selling his residence. The principal tells the agent that he will pay the agent a commission for bringing him a buyer. The agent finds a potential buyer who assumes that the agent, by way of his actions, is acting on behalf of the principal. The buyer and the agent write up a contract to purchase the house; however, before doing so, the agent informs the principal that he has found a potential buyer and will be writing up a contract, and during the conversation, the principal did not deny the existence of an agency relationship. After the purchase agreement is written, the agent presents the offer to the principal, and the principal refuses to consider the contract. In this case, the buyer may be able to hold the principal to the contract by an agency created by apparent authority.

Quick Quiz

Fill in the Blank:
The agent finds a potential who assumes that the agent (by way of his actions) is acting on behalf of the .

Agency Liability

Accountability for actions taken within an agency is acknowledged by imputed knowledge and vicarious liability.

Imputed Knowledge

Imputed knowledge is the legal term for the presumption that what one person in a company knows, everyone in the company knows. The concept applies in all states except those where designated agency is legal or where statute has nullified the theory of imputed knowledge.

The term “impute” means to attribute the fault or responsibility of a problem to a cause. The American Heritage Dictionary identifies the following two examples:

  1.  Imputed the rocket failure to a faulty gasket.
  2.  Kindly imputed my clumsiness to inexperience. In real estate agency law, after a relationship has been established, the principal may be bound by the acts of the agent that are within the agent’s authority. This means that the principal could be held liable for damage resulting from negligence or wrongful acts committed by the agent. Under imputed knowledge rule, the principal may also be responsible for all of the information the agent knows, as an agent’s knowledge is imputed onto the principal by the terms of agency.

NOTE: The imputed knowledge rule is not enforced the same in all states. In many states, an agent or the agent’s brokerage is less likely to be accountable for information that they knew but inadvertently neglected to pass on to their clients. If you have questions about how your state enforces accountability through imputed knowledge, you should consult with your brokerage or another experienced real estate professional. 

Quick Quiz

Fill in the Blank:
In many states, an or the agent’s brokerage is less likely to be accountable for information that they knew but inadvertently neglected to on to their clients.

Vicarious Liability

Vicarious liability is a legal doctrine that assigns responsibility for an injury to a person who did not cause the injury but who has a particular legal relationship to the individual who did act negligently.

Vicarious liability is the responsibility of one for the acts of another. For example, a principal can be held responsible for the actions of the broker agent if he or she had knowledge of unlawful or negligent acts. Also, a brokerage can be liable for the negligent or wrongful activities of a real estate agent. If for instance, an agent and the agent’s broker change the asking price of property without acquiring the principal’s signature before doing so, they could be vicariously liable for any damages incurred by the seller. Although some states have created statutes that limit forms of vicarious liability, it is important to keep in mind that an agent’s actions may establish vicarious liability that results in costly outcomes. The harm that does not result from a breach of contractual duty is called a tort. Tort is defined as a wrongful act, not including a breach of contract or trust that results in injury to another person, property, reputation, or the like, and for which the injured party is entitled to compensation. The following example illustrates liability resulting from tort: During one of the coldest months of the year a seller finds out that while her home was shown, someone turned the heater on, but neglected to put it out after the showing ended. A week later the seller visited the home and found the heater running and the temperature of the house to be above 80 degrees.

In this example, the brokerage could be found liable for the seller’s expensive power bill, as the party injured by the tort is entitled to sue for redress.

NOTE: Errors and omission insurance is commonly acquired by agents to protect them against liability resulting from mistakes or negligent activities. In these instances, the insurance company will settle or pay the judgment up to the specified policy amount. Some states require that agents carry E&O insurance. Some states consider the breach of duty a violation of real estate license law and as a result may take disciplinary action against an agent and his broker despite the absence of an injured party. This action may include fines, license suspension, and/or revocation. 

Quick Quiz

Fill in the Blank:
Vicarious liability is the responsibility of one for the of another.