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What is law? A body of rules of conduct of binding legal force and effect, prescribed, recognized, and enforced by controlling authority. The highest laws are written laws, or statutes. A statute is a written law passed by a legislative body.
So, what does agency law mean then? When an agent is authorized by a principal or client to represent them in dealings with others or a third party, this would be considered as agency law. It can be in writing or verbal. If you are going to represent a principal, it would be better to have this agreement in writing of course. You would also be free from you agency relationship when the transaction has been successfully closed or your agreement was expired.
Abraham Lincoln said, “We the People are the rightful master of both congress and the courts – not to overthrow the Constitution, but to overthrow the men who pervert the Constitution.”
Common law (also known as case law or precedent) is law developed by judges, courts and similar tribunals, stated in decisions that nominally decide individual cases but that in addition have or will have set precedent on future cases.
Traditional American rules pertaining to agency law, were derived to establish the social foundation of early society and continue to be rooted in laws established in England decades ago. By the late 1700s, due to circumstances specific to geography, economy, and society, American colonial legislatures were already overriding the England-based laws to meet the individual needs of the American colonies.
In general, this means that the body of real estate law that has grown out of legal customs and practices that developed in England continues to prevail unless superseded by other laws, for example, state law. In England’s common law, the principal-agent relationship was a master-servant relationship, in that the servant owed absolute loyalty to his or her master, and it required that this loyalty replaces any of the servant’s personal interests as well as any loyalty the servant owed to any other. Hence, the traces of common law can be identified in a modern-day agency. In today’s agency, the agent owes the principal similar loyalty as in common law. Just as masters used the services of servants to accomplish what they could not or did not want to do for themselves, principals use the services of agents. In this way, the agent is regarded an expert on whom the principal can rely for specialized professional advice.
With the exception of Louisiana (which uses a French-based regulatory system), all U.S. states use the common law as the foundation of their agency governance. The legal responsibilities of a broker are framed in the common-law form of agency. Driven by statutory law, although the fundamentals of agency law have been unchanged throughout history, the details for how these laws apply have changed significantly. This means that the foundation of common law dictates the basis of agency but newer, more recent statute laws which are primarily established by independent state legislatures supersede common law for the regulation of agency relationship.
Statutory laws are written laws, as opposed to oral or customary laws that were established by a legislature or other governing authority in response to a need to clarify the functioning of government on the bases of improving social order.
Administrative law can be found by going to Adminitrative Law which deals with all aspects of real estate such as license rules, fees, educations, marketing and more.
In the early 1900’s, Arizona Courts recognized the agency relationship between the broker and the client in a real estate transaction. This was the start of the agent’s fiduciary duty to the client or principal. It was also a time when land deals were abused by people trying to receive a commission when they were not party to either side.
By 1950, Arizona courts held that a real estate broker is an agent with fiduciary duties to the client or principal. What is a fiduciary duty? A fiduciary duty is a legal duty to act solely in another party’s interests. Parties owing this duty are called fiduciaries. The individuals to whom they owe a duty are called principals. Fiduciaries may not profit from their relationship with their principals unless they have the principals’ express informed consent. Ask your broker what the policy is when starting to work for a buyer. Does your broker require the agency form and the Buyer Broker Employment Agreement? They are not the same.
The Agency form is a disclosure as to what the duties of the agent and client are with no time frame. It states the Brokerage and the licensee’s name, the buyer’s or seller’s name and the election as to how the buyer or seller wishes to have the agent represent them. It also goes over what the agent is not obligated to disclose.
The Buyer Broker Employment Agreement is a little more defined in what the terms are between the buyer and the agent. The agreement between the two has a start date and a termination date and terminology that states that the agent is to locate property and negotiate terms and conditions acceptable to the buyer for a purchase of property. The buyer then agrees to work exclusively with the broker and that the compensation that the buyer is obligated to pay is usually credited by the listing broker. This can vary and if the listing agent is not offering what the buyer and buyer’s agent agreed to the buyer would be responsible for the remainder.
Once a property is located, the buyer agrees to act in good faith to acquire the property, conduct inspections and to consult the Buyer Advisory to help with any questions regarding the area, a condition of the property, material items that the buyer may need information on. The buyer advisory has a plethora of information for the buyer regarding everything from pests to the utilities, fissures, sex offenders, crime stats and more.
As a real estate agent or real estate broker you must have your client’s best interest in mind at all times. This broker-client agency relationship imposes on a broker the fiduciary duties of “utmost good faith, integrity, honesty, and loyalty in the transactions with the principal.
Speaking about commissions, commissions shall never be included as part of the contract between the seller and the buyer. A licensee may not allow controversy with another licensee to jeopardize, delay or interfere with the process of the transaction over a commission dispute. It must be dealt with outside of the transaction after the transaction has closed.