real estate chapter 7

is a person (broker or salesperson) holding a real estate license granted by a state

A relationship founded through trust and confidence from one party to another.

An individual who represents another; a principal, in dealings with third parties.

is the person who authorizes another to act on his or her behalf. The buyer and seller in a real estate transaction are principals.

arises when a principal expressly agrees, orally or in writing, to authorize the agent to act on his behalf.

arises when a principal expressly agrees, orally or in writing, to authorize the agent to act on his behalf.

Example: Assume an agent tells a principal that she is an expert in short sales and that the principal states orally that he wants the agent to negotiate a short sale on a certain property. If the agent negotiates the short sale, the principal will not be liable for the transaction because the agency relationship had to be in writing to be enforceable.

the principal has not expressly given authority, but the agent believes that the principal has given the agent authority through the principal’s actions or conduct.

Example: Assume that a broker representing the seller is given authority to sell his property to a buyer. The broker will have implied authority to take pictures of the property and market the property to potential buyers.

arises when an agent does not have authority to act on the principal’s behalf, but the principal’s words or conduct reasonably imply to a third party that the agent does have this authority.

arises when an agent does not have authority to act on the principal’s behalf, but the principal’s words or conduct reasonably imply to a third party that the agent does have this authority.

occurs when the principal approves unauthorized acts committed by the agent, such as when the agent acts either without p. 138authority or beyond the scope of the authority expressly given by the principal.

Example: A broker is given authority to purchase an estate home for $2.5 million. The broker finds the perfect home for the buyer, listed at $2.6 million, and submits an offer on the buyer’s behalf. The buyer may ratify the $2.6 million offer made by the agent. Once she does so, the buyer will become bound to the terms of the contract (if the seller accepts the offer).

The appointment of the power of attorney must be in writing signed by the principal. The appointed agent is known as an attorney-in-fact, and the person appointing the agent is the principal. While the agent is an attorney-in-fact, that person need not be an attorney.

A principal whose existence is known to the third party, but whose identity is not known.

A principal whose existence or identity is unknown to the third party.

A state-licensed real estate agent hired for a fee to purchase or sell real estate.

A state-licensed real estate agent who assists a broker in a real estate transaction.

A real estate agent who represents the seller of a property.

A real estate agent who represents the buyer of a property.

real estate agent who represents both the buyer and the seller in a real estate transaction

occurs when different agents within the same firm represent a buyer and a seller. The broker for the firm appoints a salesperson within the same firm to represent the seller and buyer separately.

A person who assists buyers and sellers in administrative acts to close the real estate transaction without representing either the buyer or the seller.

These contracts create an agency relationship and set forth the terms of the employment, commission, rights, and duties of the parties.


A state requirement that certain types of contracts be in writing to be enforceable.

A state requirement that certain types of contracts be in writing to be enforceable.

the owner can employ more than one broker to sell the same property. The first broker to obtain a buyer earns the commission.

the broker is the exclusive agent of the seller, and the broker is entitled to a commission.

the owner hires a broker to exclusively sell the property. The broker is entitled to a commission regardless of who finds a buyer, including if the owner finds the buyer.

is a network of real estate listings that provide listing brokers a larger market in which to advertise their listings.

a broker does not maintain a traditional office and places all listings on a website. This approach reduces the overhead cost to a broker, yielding savings that can be passed on to a buyer or seller of real property in the form of reduced commissions.

Compensation to a broker given by a percentage of the selling price.

A buyer who can purchase the property at the price stated in the listing agreement and under the terms and conditions of the listing agreement.

no deal... no commission

an event or requirement that must be met) to a commission

is the broker who, through his or her efforts, laid the foundation for the negotiations resulting in a sale.

Example: Broker A shows Brett a home. Brett loves the home but is unsure about purchasing it. A week later, after thinking about the home, Brett contracts with Broker B to purchase it. Broker A may allege that she is the procuring cause and is entitled to a commission on the property.

the broker and owner enter into one of the three types of listing agreements noted previously. The seller does not pay a percentage of the selling price to the broker; instead, the broker must sell the property above a price set by the seller to receive any commission. Any money above this price is the broker’s commission. If the property is sold less than this price, the broker does not earn a commission.

Example: An owner enters into an exclusive right to sell agency listing with a broker. The seller wants to receive $50,000 in cash at closing. The closing costs will be $5,000, and the seller has a mortgage on the property of $195,000. The broker will receive a commission for any amount above $250,000 ($195,000 mortgage + $50,000 cash seller wants + $5,000 closing costs).

A person who brings together the buyer and seller in a real estate transaction.

Example: Franklin, who does not hold a real estate license, is aware of a large tract of property available for sale. At a cocktail party, he meets Brian, a person interested in purchasing ranching land. Franklin may introduce Brian to the owner of the property and receive a finder’s fee, so long as his involvement is limited to bringing the two parties together to negotiate a deal. If he assists in the negotiation of the deal between the parties, he has acted without a license and is not permitted to receive any compensation.

is a duty to act in the principal’s best interest and not advance the broker’s own interests. The broker’s fiduciary duties generally begin at the time of retention by the client. They exist even in the absence of a written agreement with the client. The main fiduciary duties a broker owes to the client include the duty of care, the duty of loyalty, duty of obedience, and the duty of accounting.

A fiduciary duty that requires a broker to act as a reasonably competent real estate broker would act under similar circumstances.

Exercise due diligence and pricing.

Investigate. Some states require a broker to inspect the property and disclose any defects discovered. Where a duty to investigate exists, the duty is usually limited to the physical attributes of the property.

Communicate

Explain real estate customs and practices.

that failure caused harm to the principal or third party.

A fiduciary duty owed by an agent not to act adversely to the principal’s interest.

Make a secret (undisclosed) profit.

Disclose confidential information

Withhold material facts

Act as a dual agent without informed consent.

is one that a reasonable person would consider important in making a decision. It includes any facts that affect the value or desirability of the property.

A fiduciary duty requiring a broker to obey and follow all lawful instructions and demands of the client.

Example: If a seller is presented with an offer to purchase a home for $275,000 cash and another offer to purchase for $285,000 cash, and the seller desires to sell to the $275,000 buyer, the broker must obey the seller’s desires even though the seller is not accepting the highest offer.

occurs when the funds of a client are mixed with the licensee’s personal funds.

When a broker either intentionally or negligently misrepresents a material fact to a third party.

a third party when she or he is aware of a material fact and either intentionally misstates the fact or knowingly fails to disclose it to a third party, and the third party justifiably relies on the misrepresentation.

Example: A broker who knowingly misrepresents to a third party that a home is inside the boundaries of a top-performing school district when in fact the home is located within a below-average school district has committed a misrepresentation.

is a statement of opinion describing the greatness of a property.

Example: A broker who states that the house is maintenance-free when she knows that the roof will need to be replaced in the next year or so has made a misrepresentation.

arises when the broker remains silent when having a duty to disclose the known material facts. The disclosure of these conditions allows the third party to either back out of the deal or make provisions in the deal to address the problems or defects. 

arises when the broker remains silent when having a duty to disclose the known material facts. The disclosure of these conditions allows the third party to either back out of the deal or make provisions in the deal to address the problems or defects.

When a property is sold with all known and unknown faults and defects.

Defects that are not easily discoverable by reasonable inspection of the property.

A defect that is obvious and apparent or could be discovered upon a reasonable inspection of the property.

Example: Assume a property sold as is has a septic tank that routinely clogs and requires repair. If the broker is aware of this issue and does not inform a potential buyer, she may be liable for not disclosing the septic tank issue, even though the property was sold as is.

Insurance provided to a broker insuring the broker for breaches of fiduciary duty, negligence, misrepresentation, and other covered claims.

provides everyone an equal opportunity to buy, rent, sell, and live in residential properties.

It is unlawful to refuse to rent to families with children or to charge families extra if they have children.

Illegal practice of directing minorities to particular areas.

The illegal procedure of inducing panic among owners because of fear of minority groups moving into the neighborhood.

Example: A broker might suggest that, with a change in the characteristics of the neighborhood, resale prices will drop precipitously. The broker can then arrange to purchase the homes at reduced prices.

a broker is required to safeguard and account for all money, documents, and deeds that the broker receives or that come into the broker’s possession that belong to the client.