Termination of Agency Relationship & E&O / Agency Law and Ethics

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Termination of the employment agreement.

An exclusive listing agreement (whether exclusive representation or exclusive agency) is a bilateral contract.  A bilateral contract is a contract that requires performance by both parties.

These can be terminated in several ways:

  • completion of performance by sale or closing of the property
  • expiration of the term of the agreement
  • mutual agreement of the parties, remember if there is a “tail” clause that may extend the agents ability to be owed a commission in the even another transaction occurs during the “tail” period.
  • A Broker generally owes no fiduciary duty to the seller or the buyer after termination of the agreement and the broker or agent is free to act for themselves or the opposing party as long as the broker or agent does not hinder, delay or interfere with a transaction that could have happened during the agreement. There is one fiduciary duty though that the broker must maintain. Confidentiality of the buyer or seller, which ever the broker was representing is a must forever unless written permission is given by the seller or buyer regarding their confidential information.
Quick Quiz

Fill in the Blank:
A bilateral contract is a contract that  performance by parties.

Operation of Law is another way that an agency agreement can be terminated.

It is an automatic legal process by which an effect or result, or liability or right, is created or extinguished whether the affected party intended it or not. It is a legal term used in the court of law for those rights of a person which has been obtained by default, without any of his act or court orders, but by set of rules of law and its application. For example, when a child turns 18, the guardianship ends. If a listing agent took a listing and the owner dies, the listing would terminate. The estate could hire that agent to sell the property later.

Acts of the party could also terminate the agreement. Say that the seller decided not to sell and the listing agent agrees to consent to the termination of the agreement. Mutual consent would be the reason to terminate the agreement. Maybe it was not in the best interest of the seller to sell at the time. During the listing period the seller talk to their accountant and found that  the seller had to remain in the property as their primary residence for a period or 2 years in order to not get zapped with  capital gains tax. Or maybe the seller had a misfortune that prohibited the sale. Both parties would have to agree under mutual agreement to terminate. Of course the agent could not force the seller to sell. Remember the listing agreement is not a binding agreement to sell the property.

Bankruptcy is another factor that may not allow the seller to sell the home. If the seller enters into bankruptcy, the agent must get in touch with the attorney handling the bankruptcy, or if and when the property is sold, the agent may not receive a commission unless it is written agreement from the bankruptcy court.

Eminent domain allows the state to take a person property and the listing agent would not be able to sell the property as the state would be demolishing it for use to put in a freeway or state or county or city zoning change. It would be illegal to list and sell a property that to a resident that you knows wants to live there as the government would be taking the property in the near future. Of course the seller would be compensated when the property is taken.

Death-  if the listing agreement has been signed by both spouses and one spouse dies, the listing agreement is still enforceable against the surviving spouse. If only one spouse signed the listing agreement, however, the listing agreement is cancelled upon that spouse’s death. The general rule is that any personal services contract terminates upon the death of either party. Therefore, upon the death of the seller or the listing broker (or the bankruptcy of a listing brokerage firm) the listing agreement is cancelled, and neither the seller nor the listing broker have any remaining obligations.  If the listing agreement has been signed by both spouses and one spouse dies, the listing agreement is still enforceable against the surviving spouse. Let’s be real here though and would it be in the best interest at this time for the surviving spouse to sell the property.

In competency can be tricky. If a seller wants you to list the property and they seem to be in their right mind. During the listing period they become confused or upset and can not make decisions, what do you do? Well, some family member or a neighbor comes to tell you that the seller is incompetent and unable to sell the property as there is a power of attorney given to one of the family members. You must cancel the listing immediately and take it off of the MLS and remove the sign and lock box if any.

The broker is responsible for the actions of each of the agents that the broker hires. The broker must review all files and documents in order to make sure that each client is being protected.  E&O insurance is there to help the broker offset possible costs due to wrongful acts of the agents hired or the broker themselves. E & O coverage has deductibles and limits of coverage and does not cover everything.

Claims against brokers may be filed in a variety of forums such as Superior Court, Justice Court and small claims court. Claims may be filled with the ADRE and the State and Local REALTOR® associations and the Attorney General’s office.  Most of the claims come from buyers and are related to the property conditions. Some examples of claims deals with water issues such as availability. Permits, codes and zoning issues are among claims submitted by buyers. Termites or termite damage, sewer and septic, presence of mold, boundary and encroachments, square footage and acreage along with electrical, roof leaks, structural conditions are most of the common claims.

Quick Quiz

Fill in the Blank:
The broker is for the actions of each of the agents that the broker.

Some claims have to do with the transaction or documents in the transaction. There are earnest money disputes, financing issues, discrimination, pre and post possession, valuation and short sale issues.  Lawsuits may arise due to professional negligence, failure to disclose,negligent misrepresentation, fraud and  breach of contract are among a few.

If an agent is found liable the consequences will depend upon the type of claim and the way it was filed.  Some of the possibilities that the broker could incur is forfeiture of a commission, actual damages, sanctions from ADRE such as civil penalties to loss of license. Criminal penalties and attorney are fees and costs.

E&O insurance generally covers damages for loss as a result of real estate duties preformed by agents like listings or selling, property management is a big one and referrals and in estimating market value.

E&O policies also have exclusions and do not cover items like criminal acts, physical injury to persons or property, fair housing, and discrimination, or activities outside the agents real estate duties.



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