The law of agency identifies the responsibilities and rights of the principal and the agent. It provides directives that govern real estate transactions for the protection of all parties involved in the transaction process. Except for the consent of both sides, there are no particular formalities required to form an agency relationship. In general, based on the wording of the contractual agreement between a principal and an agent, an agency can be created in five different ways: express, implied, by ratification, estoppel, or a combination.
Express agreements can be formed in writing (for example within a listing agreement), or they may be oral; however, they all must state in implicit terms the authority that a principal gives a broker. Express authority is actual, distinctly said, and specific authority is provided by a principal to an agent through written or oral enacting words as such, these agreements represent ultimate authority. The principal and the agent formally express their interest to form an agency by stating the terms and conditions of their relationship. The listing agreement authorizes the broker to find a buyer, or tenant, for the principal’s property.
Because it is much easier to prove a relationship if it is written, it is recommended that, although express authority may legally exist and therefore be legally binding when orally expressed, these agreements be identified in writing this is especially important if/when the future brings disagreements. Additionally, in some states, an agent does not have the right to take action against a principal for unpaid commissions if there is not a written agency agreement between the two parties.
Much like a listing agreement, a buyer agency agreement specifies the activities and duties
Anticipated by the principal of the agent to procure a property. For example, Scott was recently promoted to an area manager position in his company and as a result, is being relocated to another city. Because he needs to sell his residence, he contacts a real estate broker. The broker contracts his authority to represent him by using a formal listing agreement that she and he both agree to and sign. This formal agreement identifies the broker’s express agency authority to find a buyer for Scott’s home.
Implied agency agreements occur when the actions of principal and an agent informally indicate that they have mutually agreed to an agency. The important word here is “actions.” The implied agency is derived from actions, not words. In this way, the principal delegates the authority to represent him or her. Even though the two parties did not create a formal agency relationship, their actions have implied one. For example, Scott explains to a friend, who happens to be a broker, that he needs to sell his home because he will be relocating to another city. The broker contacts a prospective buyer who makes a viable offer. The broker then contacts Scott and Scott accepts. Although a formal agency agreement was not identified either orally or written, the broker’s actions implied that she was acting as Scott’s agent and therefore will likely be viable.
Despite the words identified in a contract, that list an agent’s express authority; agents may find that the services they want to do are not covered by the words defined in the listing agreement. In this event, an agent would have implied authority to carry out an act if the agent has no choice but to do it to fulfill his or her express authority. In contrast, consider the following scenario: Suppose Ed owns a residence and he wants to sell it for $300,000. To accomplish this, he lists the property with 1st Nampa Realty Inc. Sally, a 1st Nampa Realty agent shows the goods and her first prospective buyer makes an offer for $290,000. Ed accepts the offer, but with a deposit of $3,000 to be held by 1st Nampa Realty. The contract stipulated that the deposits on the purchase would be paid to the seller if the buyer was unable to acquire a loan. Later, the buyer refused to close because of a title encumbrance. Without notifying Ed, 1st Nampa Realty gave the $3,000 back to the buyer. Ed later sold the property to another buyer and 1st Nampa insisted that Ed pay them a commission. Given implied authority, if 1st Nampa decided to sue for a commission, it is likely the court would rule in favor of the seller because 1st Nampa Realty did not have implied authority to return the deposit to the buyer.
It can be difficult for clients to comprehend the complexity of agency law. For instance, a buyer may conclude that when she contacts a salesperson to show her properties, the salesperson becomes her agent, even though, under a listing contract, the salesperson may be formally representing a seller, and unbeknownst to the buyer, a dual agency has been established. In an effort to limit conflict between buyers and sellers, some state laws prohibit the creation of agency by implied actions of conduct.
Most people are aware that a real estate broker or salesperson (“Broker”) is an agent with fiduciary duties to the party that the Broker represents. This agency relationship is most often created by express agreement; however, an agency relationship can be legally implied by the parties’ actions. Regardless of whether the agency relationship is express or implied, the agency relationship imposes on a Broker the fiduciary duties of loyalty, obedience, disclosure, confidentiality, and accounting.
Unfortunately, there are times when a Broker’s agency relationship or duties may be unclear. The following is a discussion of several of these agency dilemmas, along with some possible solutions. As you will see, these situations can generally be avoided if the Broker defines his or her relationship with a buyer or seller as soon as possible and educates the buyer and seller about the scope of the Broker’s duties.
Information Obtained During a Listing Presentation
During a listing presentation, the seller divulges what could be considered confidential information to the Broker. The seller does not enter into a listing agreement with the Broker but lists the property with another brokerage firm. Is an implied agency created?
The concept of agency is one of law. Its existence depends upon factual elements that enable a determination, as to whether an agency relationship existed, to be made from all the peculiar circumstances of the particular case. No one fact, seized from its setting, should be regarded as conclusive or controlling under any and all circumstances. Busk v. Hoard, 396 P.2d 171 (1964 Wash. 1964).
In Hayward v. Graham, 104 Ariz. 103, 449 P.2d 31 (1968), the court stated:
An implied agency must be based on facts…such as to indicate an intention to create the agency, and the implication must arise from a natural and reasonable, and not from a forced, strained, or distorted, construction of them. They must lead to the reasonable conclusion that mutual assent exists, and be such as naturally lead another to believe in and to rely on the agency. (Emphasis in original)
See also, Walter v. Moore, 700 P.2d 1219 (Wyo. 1985).
A listing presentation alone does not include the intent to create an agency relationship. Further, the mutual assent necessary to create an agency relationship would not occur until the seller agreed to list the property with the Broker and an express agency relationship was entered into. Thus, an implied agency is not created in a listing presentation, unless the Broker implies an intention to create an agency relationship and the seller consents. To avoid this situation and any implied agency, a Broker could explain to the seller early in the listing presentation that no agency relationship will exist until the seller enters into a listing agreement with the Broker.