Agency Relationships / Agency Law and Ethics

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Agency Relationships

As established, agency identifies the relationship between a principal, and an agent. This relationship may be based on a written or oral agreement, and as such be identified as an express agency, or it may result by the informal actions of either the agent or the principal to  form an implied agency. However, we have not identified authority for specific activities that are  authorized by agency law. The specific “to dos” or acts that an agent can do are dependent on  the type of agency needed. Three levels of authority used to form the basis of activities carried out in an agency relationship include:

1. Universal

2. General

3. Special

Quick Quiz

Fill in the Blank:
As established, Agency identifies the relationship between the and the .

1. Universal

Under universal agency relationships, the agent may do all those things that the principal could do (provided such activities are ethical, honest, and lawful) even personal business. This means that the field of  possible activities is wide open and unlimited. It offers the greatest level of authority for agents; however,  for this very reason, it is also the least common of the three types of agency used. Simply put,  this level of authority exceeds the general needs of principals. It is commonly created via a power of attorney and gives an agent attorney-level responsibility and authority. For instance,  it gives agents the ability to obligate the principal in a contract without the principal’s consent. This kind of agency can be created by a general power of attorney.

For these kinds of reasons, only under special situations and for unique relationships is this type of agency purposeful.

2. General Agent

A general agent represents a principal’s general needs, much like the relationship most salespeople share with their brokers and that property owners share with their property managers. Agents can contractually bind a principal to a contract within  the scope of the general agent.

Some suggest that the rights of agents under this type of agency is too restrictive; however, it should be noted that the authority given to agents under this pretense more than meets the needs of most agency relationships, and therefore adequately serves agents in facilitating effective transactions on behalf of their principals. A property manager is typically a general agent for the owner.

Common activities performed under general agent include (but are not limited to):

· Acquiring listings

· Establishing buyer representation agreements

· Marketing properties

· Negotiating offers

· Showing properties

3. Special Agent

In most cases, real estate brokers are “special” or “limited” agents. Special agents operate  under specific scope with specific limitations. When representing a buyer for instance, the agent is limited to finding properties that fall within a specified criteria identified by the buyer. So, the agent is limited and authorized  to represent the principal in one specific act or business transaction, with and under detailed instructions. A real estate broker is usually a special agent. If hired by a seller, the broker is limited to finding a ready, willing and able buyer for the property. If the agent or broker is working with the buyer, that agent would have limited responsibility of finding a property that fits the buyer’s criteria. A special agent may not bind a principal to any contract.

For example, how much money the buyer is willing to spend, specific neighborhoods that will work, acceptable floor plans, sought amenities, etc. Suppose you ask your best friend to take your car to a tire store to get new tires installed. Assuming your friend is willing to help, under  this guise, he has become your general agent because you have only limited his activity to purchasing tires. That is, he still has the right to go to the tire store of his choice; he has the right to spend as much or as little as he wants, and he has the right to select the brand of tires and size of the tires he wants as well. Depending on your friend’s personal tastes, you may  wish to reduce the risk of your car being returned with tires that do not match your interest by providing him with further limitations. For instance, you may wish to limit his choices further by restricting him to a specific store, specific cost, specific brand, and specific sizes. Adding these additional restrictions would change the basis of your relationship with your friend from “general” agent to “limited” agent.  So you can figure that a limited agent is given specifics to work with and may only act in those specifications.

Quick Quiz

Fill in the Blank:
Special agents operate under scope with specific.

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