Lesson 8: Real Estate Agency Law

1. Principles of California Real Estate Lesson 8: Real Estate Agency Law

2. Definitions • Agency relationship: Established when one person authorizes another to represent her in dealings with other people (third parties).

3. Definitions • Agency relationship: Established when one person authorizes another to represent her in dealings with other people (third parties). • Person authorizing another to represent her: principal. • Person authorized to act as principal’s representative: agent.

4. Agency Relationship • Seller or buyer hires a broker to act as representative (agent) in a real estate transaction.

5. Agency Relationship • Seller or buyer hires a broker to act as representative (agent) in a real estate transaction. • Many real estate transactions involve more than one agency relationship: • each party may have own agent • typical transaction also involves real estate salespersons working for brokers

6. Agency Law • Agency relationship has important legal consequences for both parties:

7. Agency Law • Agency relationship has important legal consequences for both parties: • Dealing with agent may be legal equivalent of dealing with principal directly.

8. Agency Law • Agency relationship has important legal consequences for both parties: • Dealing with agent may be legal equivalent of dealing with principal directly. • Agent owes certain legal duties to his principal.

9. General Agency Law • Governs agency relationships and establishes agent’s powers and duties. • Applies to agency relationships between: • lawyer and client • trustee and beneficiary • real estate agent and seller or buyer

10. Creating an Agency • Duties and liabilities of agency relationship arise automatically when relationship is created.

11. Creating an Agency • Duties and liabilities of agency relationship arise automatically when relationship is created. • Under general agency law, agency relationships created by: • express agreement • ratification • estoppel • implication

12. Creating an Agency Express agreement • Principal appoints someone to act as his agent, and agent accepts appointment. • Most agencies created by express agreement.

13. Creating an Agency Express agreement • Principal appoints someone to act as his agent, and agent accepts appointment. • Most agencies created by express agreement. • Examples: • listing agreement • buyer agency agreement • power of attorney

14. Creating an Agency Express agreement • Express agency agreement must meet some—but not all—requirements for valid contract: • mutual consent • competent parties • lawful purpose

15. Creating an Agency Express agreement • Express agency agreement must meet some—but not all—requirements for valid contract: • mutual consent • competent parties • lawful purpose Consideration NOT required. Agency relationship can exist even if principal isn’t compensating agent.

16. Creating an Agency Express agreement • Valid agency can be created with oral agreement (but written agreement always best). • Agency relationship begins as soon as parties agree to it.

17. Creating an Agency Express agreement • Valid agency can be created with oral agreement (but written agreement always best). • Agency relationship begins as soon as parties agree to it. • Without written agreement, broker can’t sue client for compensation.

18. Creating an AgencyRatification • Principal gives approval—after the fact—to acts not authorized at time they were performed.

19. Creating an AgencyRatification • Principal gives approval—after the fact—to acts not authorized at time they were performed. • Principal may ratify agency by: • expressly approving unauthorized acts or • accepting benefits of unauthorized acts

20. Creating an AgencyEstoppel • Agency is created by estoppel when: • apparent agent acts on behalf of principal without authorization • principal allows third party to believe actions were authorized

21. Creating an AgencyEstoppel • Agency is created by estoppel when: • apparent agent acts on behalf of principal without authorization • principal allows third party to believe actions were authorized • The principal is estopped (prohibited) from denying agency in order to protect innocent third party.

22. Creating an Agency Implication • One person’s behavior implies that he’s acting as another person’s agent.

23. Creating an Agency Implication • One person’s behavior implies that he’s acting as another person’s agent. • If a person believes that someone is acting as her agent, and that someone fails to correct that impression, he may be held to owe agency duties to the first person.

24. Creating an Agency Implication • Agency by implication is similar to agency by estoppel, except: • in agency by estoppel, principal must acknowledge agency for protection of third party

25. Creating an Agency Implication • Agency by implication is similar to agency by estoppel, except: • in agency by estoppel, principal must acknowledge agency for protection of third party • in agency by implication, agent must acknowledge agency for protection of principal

26. Agency Express agreement Power of attorney Ratification Estoppel Implication SummaryCreating an Agency Relationship

27. Legal Effects of Agency • Dealing with agent can be the legal equivalent of dealing with principal: • agent’s actions may be binding on principal • principal may be held liable for agent’s mistakes/misconduct • principal may be held to know information known by agent

28. Legal Effects of AgencyAgent’s actions bind principal • General rule: authorized acts performed by agent are legally binding on principal, as if principal had performed acts himself.

29. Legal Effects of AgencyAgent’s actions bind principal • General rule: authorized acts performed by agent are legally binding on principal, as if principal had performed acts himself. • Principal typically bound only by agent’s acts that are within the scope of authority granted by principal.

30. Agent’s AuthorityGeneral agent General agent: Agent who is authorized to act in one or more specified areas of principal’s affairs. • Within those areas, general agent has broad authority. • Often handles all matters for particular business/property owned by principal (example: property managers).

31. Agent’s Authority Special agent Special agent: Agent is authorized to do only a specific thing or conduct a specific transaction. • Broker typically authorized to represent seller/buyer only in single transaction. • Broker’s authority usually quite limited in that single transaction.

32. Agent’s Authority Actual vs. apparent authority • Two types of agency authority: • actual • apparent

33. Actual vs. Apparent Authority Actual authority Actual authority: Written or oral authority granted to agent by principal.

34. Actual vs. Apparent Authority Actual authority Actual authority: Written or oral authority granted to agent by principal. • Express actual authority: when principal specifically directs agent to do something.

35. Actual vs. Apparent Authority Actual authority Actual authority: Written or oral authority granted to agent by principal. • Express actual authority: when principal specifically directs agent to do something. • Implied actual authority: agent’s additional authority to do whatever necessary to carry out acts expressly authorized by principal.

36. Actual vs. Apparent Authority Actual authority • Principal is bound by agent’s actions if within scope of agent’s actual authority. • Principal may also be bound by actions within scope of agent’s apparent authority.

37. Actual vs. Apparent Authority Apparent authority Apparent authority: Authority agent appears to have, although principal didn’t actually grant it.

38. Actual vs. Apparent Authority Apparent authority Apparent authority: Authority agent appears to have, although principal didn’t actually grant it. • Principal not bound by unauthorized actions unless she’s aware of them and her conduct indicates approval.

39. Actual vs. Apparent Authority Apparent authority • If principal fails to deny that apparent agent’s actions are authorized, and third party relies on agent’s apparent authority, principal may be bound by agent’s actions. • Third party should always try to verify agent’s authority and determine scope.

40. Summary Agent’s Actions Bind Principal • Authorized actions are binding • Scope of authority • Actual authority • Apparent authority • Ostensible agent

41. Legal Effects of Agency Vicarious liability • Tort: mistake, accident, or misconduct resulting in injury/financial harm to another. • Party committing tort may be held liable and required to compensate injured party.

42. Legal Effects of Agency Vicarious liability • Tort: mistake, accident, or misconduct resulting in injury/financial harm to another. • Party committing tort may be held liable and required to compensate injured party. If agent commits tort, principal may be held liable under theory of vicarious liability.

43. Legal Effects of Agency Vicarious liability • Vicarious liability: principal liable for agent’s torts as if he had committed them himself.

44. Legal Effects of Agency Vicarious liability • Vicarious liability: principal liable for agent’s torts as if he had committed them himself. • Person injured by agent may sue principal as well as agent.

45. Legal Effects of Agency Vicarious liability • Vicarious liability: principal liable for agent’s torts as if he had committed them himself. • Person injured by agent may sue principal as well as agent. • Principal and agent jointly responsible for paying any judgment awarded to plaintiff.

46. Legal Effects of Agency Vicarious liability • Injured party’s chances of collecting judgment increase when two defendants are responsible for paying judgment. • Even if one defendant doesn’t pay, the other may.

47. Legal Effects of Agency Vicarious liability • If innocent principal is vicariously liable for agent’s actions, he can sue agent.

48. Legal Effects of Agency Vicarious liability • If innocent principal is vicariously liable for agent’s actions, he can sue agent. • Agent must reimburse principal for any money paid to third party. • Principal must be able to enforce judgment against agent.

49. Legal Effects of Agency Vicarious liability • A principal can be vicariously liable both for acts of his broker and for acts of salesperson working for his broker.

50. Legal Effects of Agency Vicarious liability • A principal can be vicariously liable both for acts of his broker and for acts of salesperson working for his broker. • A broker can be vicariously liable for negligent or wrongful acts of her salesperson.