The notes below are intended only to supplement a complete and diligent review of the related chapter in your course text. Studying these notes alone is not expected to be adequate test preparation.

 

 

AGENCY

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An agency relationship is created when one person represents the interest of another person. The two parties in this relationship are referred to as the principal and the agent. The principal hires the agent to represent the principals interest. The relationship is founded on trust an confidence otherwise known as a fiduciary capacity.

 

An agents fiduciary duties include the following:

 

• to be loyal to their principal - this requires putting the principles interests ahead of their own interests or the interests of any third party. Although the agent owes 100 percent loyalty to their principal they must treat all parties to the transaction fairly and honestly

• to obey reasonable instructions - this does not require the agent to follow unreasonable or illegal directions given by the principal

• skill, care, diligence - the agent must not been negligent in the representation of the principal

• accounting - the agent is responsible for all money placed in the agents care which belongs to the principal

• disclosure - agent must disclose all material facts regarding the subject of the agency relationship

 

A sub-agency occurs when an agent represents an agent. For example, the seller hires the broker to locate a purchaser for the property. The broker is the seller's agent. The broker, however, is represented by his own agent, the salesperson. The salesperson could be referred to as a sub-agent.

 

A special or limited agency is one that is created to accomplish a specific purpose, for example finding a purchaser for the property.

 

A general agency is much broader in scope and is created when one person represents another in all matters within a particular trade business. For example, a salesperson representing a broker in the real estate business.

 

A universal agency occurs when the agent represents the principal in all matters both business and personal.

 

The agent may be authorized to represent the principal through:

 

• the oral or written contract, known as contractual authority

• things are customarily done in the business, known as implied authority

• apparent authority, which is the degree level or extent of authority that the public can safely assume that the agent has

 

In a New Jersey real estate transaction the broker chooses one of the following business relationships in each transaction they are involved in:

 

• a seller's agent represents the best interest of the seller and owes the fiduciary duties to the seller

• a buyer's agent represents the best interest of the buyer and owes the fiduciary duties to the buyer

• a disclosed dual agent works for both the buyer and the seller. This is only possible with the informed written consent of both buyer and seller. When working as a disclosed dual agent the agent must not disclose the confidential information of one party to the other party without permission.

• a transaction broker does not represent or promote the interest of one party over those of the other party. The transaction broker simply brings the buyer and seller together without representing either one.

 

In most real estate transactions the licensee must supply information to buyers and sellers regarding the four recognized business relationships that firm may engage in. The licensee must supply the buyer or seller with a Consumer Information Statement on New Jersey Real Estate relationships. The CIS defines the four relationships. The CIS must be supplied to buyers prior to any discussion about the buyers motivation or financial ability to buy. It must be supplied to sellers prior to any discussion about the sellers motivation or desired selling price. At the time the CIS is supplied the licensee can optionally declare what capacity they will be acting. The licensee must, however, include in all brokerage agreements, such as a listing agreement, a declaration of business relationship indicating the type of relationship they intend to have with the other party. The licensee must include in all offers, contracts, or leases prepared by them the declaration of business relationship indicating in what capacity they are operating. If more than one firm is involved in the transaction the contract must indicate in what capacity the other firm is acting. See notes on CIS

 

The licensee acting as a buyer's agent must disclose to sellers that they represent the buyer prior to a discussion regarding the sellers motivation to sell or desired selling price.

 

All licensees must disclose to other licensees what type of business relationship they have with any party they may be working with.

 

An agency relationship in which the licensee represents only one party is sometimes referred to as a single agency relationship.

 

Dual agents are prohibited from receiving compensation from both the buyer and seller in the same real estate transaction.

 

If a licensee purchases a property listed with him, he must make full disclosure to his client to avoid creating an accidental and undisclosed dual agency.

An agent must avoid all conflicts of interest and disclose all unavoidable conflicts.

In New Jersey all licensees must fully cooperate with any other New Jersey licensee when it is in the best interest of their client unless they have been specifically instructed by their client not to cooperate with other licensees. When instructed not to cooperate with other licensees the agent must have a principal sign a Waiver of Broker or Cooperation.

 

Real estate brokers are required to supervise the activities of any salesperson in his or her employ. The broker may not hire a salesperson that does not bear a good reputation for honest and fair dealing. The broker can be held responsible for the wrongdoings of a salesperson in his or her employee if he or she had guilty knowledge.

 

When a broker hires a salesperson an employment contract must be drawn up and signed by both parties. The contract must minimally include:

 

• the amount or rate of compensation the salesperson is to receive

• a stipulation that the broker will pay the salesperson within ten days after the broker receives the commission or as soon thereafter as the funds have cleared the brokers bank, or in accordance with another payment schedule explicitly set forth in the employment agreement

• rates of compensation to be paid after termination of employment on pending transactions, renewed leases, etc.

• a provision that changes to the agreement must be made in writing

• if the salesperson is working as an independent contractor the contract should so state

 

Real estate brokers must not offer incentives to salespersons for merely referring clients or customers to a particular lender, mortgage broker or other provider of related. services.