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Friday, October 07, 2005

Working with an Agent

Agency: The Relationship Between Agent and Client

What Is Agency?
Agency is a legal concept and the root of all agent/client relationships. The law of agency describes agency as a relationship where one party (the agent) accepts responsibility for representing another party (the principal or client) in dealing with a third party.

Note: This article deals with the most common agency relationship. Information on dual agency is contained in a separate article.

In a real estate or mortgage transaction, agency applies to the relationship that exists between a brokerage and its client. While the person the client typically deals with is commonly referred to as an agent, the legal relationship is actually between the client and the brokerage. For example, the parties to a brokerage agreement to sell a property will be the brokerage and the owner. An agent employed by the brokerage will usually be authorized by the brokerage to enter into such contracts on its behalf.

How Are Agency Relationships Formed?
Agency relationships can be formed in two ways:

1. Express agency
In express agency, the parties (brokerage and client) clearly express, in writing or orally, their intention to enter into an agency relationship and the agreed terms of that relationship.

Consumers can choose to enter into a written agreement with a brokerage (written express agency) or a verbal agreement (oral express agency).

Written express agency occurs when a consumer and brokerage enter into a written brokerage agreement contract. The contract authorizes the brokerage to represent the client in the necessary capacity and indicates the details of the relationship. In most situations a written agreement is preferred because it clearly establishes the formation of an agency relationship and offers better protection for both the consumer and the brokerage and its agents.

Express agency can also be created orally. For example, a buyer and brokerage may discuss their agency relationship and agree orally that the brokerage may seek out a suitable property and represent the buyer/client in a purchase.

2. Implied agency
This form of agency relationship is less tangible than express agency. It is created by the conduct of the parties rather than their express written or verbal agreement. Therefore, when certain behaviour implies a relationship exists, such as when an agent acts like an agent or a consumer acts like a client their activities may still be subject to agency law whether or not they had entered into an agreement. Because implied agency is less clear than an express agreement, agents and consumers might unintentionally create an agency relationship and may be held liable for their actions toward the other.

Examples of Implied Agency:

a) Agent Creates Implied Agency
Mary Agent acts for Mr. Seller. When she meets a buyer at Mr. Seller’s open house, she fails to disclose her role to a buyer. She also advises the buyer on a suitable offering price for the property. To encourage the buyer to make an offer, Mary says, “I’ll make sure you get a good deal on this house."

Because Mary’s conduct is similar to that of an agent (offering advice, assuring the buyer’s interests will be protected by getting a good deal), Mary may be creating an implied agency relationship. If her advice causes the buyer to think Mary represents him (agency relationship) the buyer may have grounds for future legal action against Mary and the dispute may be subject to the interpretation of a court.

b) Consumer Creates Implied Agency
Seller Dave has a written agreement with Brokerage A to sell his house, but there is little activity and Dave is becoming frustrated.

Dave meets Agent Bob of Brokerage B and tells him he is anxious to sell the house. He asks for Bob’s help, saying, “If you know a buyer, bring them over.” However, Seller Dave does not mention his agreement with Brokerage A because he fears Agent Bob will not help him if he knows another brokerage is involved. When Agent Bob asks Dave to enter into a written brokerage agreement with him, Dave says, “Not just now, but maybe soon.”

Agent Bob tells a real estate colleague, Agent Banita about his potential new listing. Banita has a buyer and Bob arranges with Seller Dave for Banita to show Dave’s house to her buyer. The buyer offers on the property and Banita, believing Agent Bob will soon be listing the property, delivers the offer to him.

Agent Bob meets with Seller Dave to review the offer. Dave asks many questions and Agent Bob offers his advice. Based on this advice, Seller Dave accepts the offer. Later, when Agent Bob asks Seller Dave for a commission payment, Seller Dave refuses to pay, claiming Bob isn’t his agent because Brokerage A is.

Seller Dave failed to disclose his relationship with Brokerage A and sought Agent Bob’s help and advice. A court may view these actions as sufficient to have led Agent Bob to believe there was an implied agency relationship. If so, Seller Dave may be liable to pay Agent Bob. Additionally, Dave will also likely owe compensation to Brokerage A because he breached the brokerage agreement by dealing with another agent.

Avoid the Pitfalls
To avoid the potential pitfalls of implied agency relationships all parties should be clear about their roles in a transaction. The Real Estate Act, Rules, Code of Conduct requires Alberta industry members to clearly disclose their roles.

However, consumers should also act honestly in their dealings. Seller Dave is an example of acting dishonestly. He should have told Agent Bob about his brokerage agreement with Brokerage A, to avoid creating an implied agency relationship.

Duties of an Agent to a Client
In agency relationships, the brokerage (including its broker, associate broker(s) and agents) owes certain duties to its clients. These duties are called fiduciary duties. They include:

Undivided Loyalty: An agent must act in the client’s best interests. An agent must put the client’s interests ahead of anyone else’s, including his own.
Obey Instructions: The agent must obey the client’s lawful instructions and not act beyond the authority granted by the client.
Confidentiality: All information received from a client or obtained as a result of representing that client must be kept confidential.
Reasonable Care and Skill: It is expected that agents will perform at a level reasonably expected of competent real estate professionals. An agent is not expected to have expertise beyond this, unless the agent implies or states such expertise.
Full Disclosure: An agent must disclose to the client all known material facts which may affect or influence the client’s decision in the transaction.
Full Accounting: An agent is accountable for all money or property entrusted to the agent by the client.

Duties of a Client to an Agent
A client in an agency relationship is obligated to fulfill the client’s responsibilities laid out in the brokerage agreement. This will usually include items such as dealing with paperwork in a timely fashion, payment of commission, reimbursement for certain expenses the agent pays on the client’s behalf, etc.

A client must also conduct their dealings honestly. For example, if the property has a defect which seriously affects the property but is not visible, such as a cracked foundation behind drywall, the client must disclose it to a buyer. When an agent represents a client, he or she is also required to disclose the defect on the client’s behalf.

source RECA

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