Law of Agency

What is an Agent?

The law of agency deals with the relationships between sellers and buyers and real estate licensees. Typically, we're talking about the managing broker, the one in charge. Let's first define what is an agent: 

An agent simply means that a person has been hired to represent someone else in a real estate transaction such as a seller or buyer client. 

There are two types of agents a licensee can be, a licensee being one who has received a real estate license. One type of agent a licensee can is called a special agent, which means that a person or licensee represents someone, one time in one area. A typical situation is when a licensee represents a seller in selling their home. The licensee only represents the seller that one time on that one property. Whereas the general agency relationship is an ongoing relationship. This might be like a property manager representing an owner in several areas on an ongoing basis. In this case, the person would be classified as a general agent.

Power of Attorney

Many times at closing, a seller, for example, cannot be there to sign the documents, so the seller would like to have someone else step in and sign their name on all of the legal documents at closing. 

The seller can agree with someone else to become what is called their attorney-in-fact, which is a title given to someone who has received a power of attorney. 

So, if the seller has a friend who is willing to sign their name on those closing documents, the seller would give the friend what is called a power of attorney document that needs to be signed, which allows a friend to sign the seller's name. So, the power of attorney is what authorizes someone to sign somebody else's name on their behalf. Someone who has the power of attorney is referred to or called an attorney-in-fact. The attorney-in-fact, is simply the title given to someone who has this power of attorney. 

Agency Relationships

Let's next talk about how agency relationships can be created. Most agency relationships are created on an express basis which means both parties will clearly state their intentions, such as when a licensee lists a seller’s home for sale. 

The opposite of that would be an implied agency situation which is created by a person's actions. Implied agency is not where you want to be in real estate. An implied agency would be where a licensee says to a buyer, stick with me, I'll be sure to get you the best deal in town. The licensee is implying that the licensee is going to represent the buyer, but in fact that may not be the case without a signed, written buyer agency agreement. So, expressed agreements are where licensees should always be, meaning that the agreements are in writing and both parties are clearly stating their intentions.

The Client

The principal or client, those two terms are interchangeable, is the party that hires the agent. The principal or a client who does the hiring will give instructions so forth and so on. The agent who is hired to represent that principal or a client must follow instructions, as long as they are legal instructions and must always do what is in the best interest of their client. The agent who is hired always has a fiduciary obligation to the principal or client, which means the agent must do what is in the client's best interest. 

Finally, dual agency is where a licensee represents both a seller and a buyer at the same time on the same transaction. Some states allow this, and some states do not. For the states that do allow dual agency, this must be agreed to by all parties right up front.

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