Chapter 4 (Authorized Relationships and Ethics) Flashcards Preview

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Flashcards in Chapter 4 (Authorized Relationships and Ethics) Deck (26)
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1
Q

The Law of Agency

A

When a person delegates authority to someone to act on his or her behalf, an agency relationship has been created. Agency relationships fall within the body of law called law of agency. There are three types of law that society looks to for guidance regarding agency relationships: common law, statutory law, and administrative law.

  1. Common law (sometimes called unwritten law) is law based on usage, general acceptance, and custom.

It is judge-made law manifested in decrees and judgments of the courts (case law).

Common law originated in England and was later incorporated into the U.S. legal system.

Under the English common law, servants owed absolute loyalty to their masters.

This absolute loyalty is one of the fundamental principles of the agency relationship. Agency law derives from common law.

  1. Statutory law is written statutes enacted by the legislature.

Chapters 455 and 475 are two Florida statutes enacted by the Florida Legislature pertaining to license law.

  1. Administrative law is a body of law created by administrative agencies in the form of rules, regulations, orders, and decisions.

Florida Statute 475 empowers the Florida Real Estate Commission to govern real estate practice in Florida.

In addition to the statutory laws of agency, real estate license law and the Florida Real Estate Commission (FREC) rules directly affect and regulate the brokerage relationships among real estate licensees, buyers and sellers, and the public.

2
Q

Common Law

A

Judge-made law manifested in decrees and judgments of the courts (case law) as opposed to statutory law.

3
Q

Statutory Law

A

Written statutes and rules enacted by the legislature.

4
Q

Administrative Law

A

Body of law created by administrative agencies in the form of rules, regulations, orders, and decisions.

5
Q

Agency Relationships in General Business Dealings

A

In general, a person who delegates authority to another is called the principal.

A person who accepts the authority (and responsibilities, duties, and obligations associated with that authority) is called the agent.

An agent is the person entrusted with another’s business. An agent is authorized to represent and act for the principal.

The agency relationship creates a fiduciary relationship with the principal.

*A fiduciary acts in a position of trust and confidence for another.

The fiduciary owes complete allegiance to the principal.

A fiduciary relationship contrasts with the common public relationship that exists in normal trading transactions where people with adverse interests deal at arm’s length with one another.

People dealing at arm’s length conduct negotiations on their own behalf without trusting the other’s fairness or integrity and without being subject to the other’s control or influence.

In such cases, the legal doctrine of caveat emptor (let the buyer beware) applies. Agency relationships exist in many business transactions such as between an attorney (agent) and client (principal).

An agency relationship may exist in certain real estate transactions (this will be explained in detail in the following section).

There are three types of agents characterized by the extent of authority delegated to an agent in general business dealings:

(1) universal agent,
(2) general agent, and
(3) special agent.

  1. A universal agent is authorized by the principal to perform all acts that the principal can personally perform and that may be lawfully delegated to another.

An attorney who manages the trust agreement of a mentally disabled adult is a universal agent for that client (the principal). Duties of the attorney-agent would include, for example, overseeing the principal’s financial affairs, medical care, employment opportunities, and living arrangements.

  1. A general agent is authorized by the principal to perform acts associated with the continued operations of a particular job or a certain business of the principal.

A property manager, for example, acts as a general agent if authorized to show and rent apartments, collect rents, supervise maintenance and upkeep of the property, handle tenant relations, and perform bookkeeping duties.

A sales associate is a general agent of the employing broker.

  1. A special agent is authorized by the principal to handle only a specific business transaction or to perform only a specific act.

If you hire a certified public accountant (CPA) to prepare your tax return and, if necessary, to answer any inquiries from the IRS concerning the tax return, the CPA is acting as a special agent for you (the principal).

A real estate licensee may act as a special agent with buyers or sellers.

This occurs when the buyer or seller and the brokerage firm enter into a single agent relationship.

The broker agrees to represent the buyer or seller with regard to a single business transaction.

Not all real estate brokers act as agents of buyers and sellers (see Single Agent Relationship later in this unit).

6
Q

Universal Agent

A

An agent authorized by the principal to perform all acts that the principal may personally perform and that may be lawfully delegated.

7
Q

General Agent

A

An agent authorized by the principal to handle the affairs related to a business or trade, or to handle all the business at a certain location; for example, a property manager.

8
Q

Special Agent

A

An agent authorized by the buyer or the seller to handle only a specific business transaction or to perform a specific act; a broker who has a single agent relationship is a special agent with limited power or authority.

9
Q

Brokerage Relationships in Florida

A

Historically, there has been confusion among buyers and sellers regarding what role real estate licensees have in real estate negotiations.

Sellers assumed that real estate licensees represented their interests because sellers traditionally paid the commission.

However, the payment of commission or the promise of compensation alone is not what determines whether a brokerage relationship exists.

A brokerage relationship can be accidently (inadvertently) created by a licensee’s actions and words.

For example, referring to a prospective purchaser as “my buyer” or “my client” may imply that the licensee is representing the buyer when in actuality the brokerage is representing the seller.

Because of this confusion, the Florida legislature passed the Brokerage Relationship Disclosure Act.

The Brokerage Relationship Disclosure Act is intended to inform and educate the public regarding the types of authority (brokerage relationships) that can be granted to a broker and the duties brokers have in each type of brokerage relationship.

10
Q

Brokerage Relationship Options

A

Licensees have three basic options in all real estate transactions concerning the role the real estate brokerage firm will assume for buyers and sellers:

  1. The brokerage firm may work as a transaction broker for the buyer and/or the seller.
  2. The brokerage firm may work as a single agent of either the buyer or the seller (but not for both buyer and seller in the same transaction).
  3. The parties may agree that the brokerage firm will not represent the buyer or the seller at all.

This situation is called no brokerage relationship.
The brokerage firm simply facilitates the transaction.

In Florida, a real estate licensee may enter into a brokerage relationship either as a transaction broker or as a single agent with prospective buyers and sellers.

Alternatively, the customer may desire not to be represented in any capacity by the brokerage firm.

For example, property owners who have found buyers for their own homes (for-sale-by-owners, also called FSBOs) may want a knowledgeable real estate firm to handle the paperwork regarding the transaction.

However, an FSBO seller may not need or desire the broker to represent or negotiate on the seller’s behalf.

In such cases, FSBOs may elect no brokerage relationship with the brokerage firm.

It is illegal in Florida for a real estate licensee to operate as a dual agent.

*The term dual agent means a broker who represents as a fiduciary both the prospective buyer and the prospective seller in a real estate transaction.

When a broker represents a buyer or a seller as a fiduciary, the broker is in a relationship of trust and confidence between the broker as agent and the seller as principal or the buyer as principal.

A fiduciary relationship is created when a real estate broker accepts employment as a single agent of the seller or the buyer.

In an agency relationship, the broker owes fiduciary duties to the principal.

Florida real estate license law prohibits a broker from creating a fiduciary relationship with both the buyer and the seller.

11
Q

Residential Transactions

A

Chapter 475 mandates certain duties and obligations in each type of brokerage relationship.

These duties and obligations apply to all real estate transactions.

However, written disclosures are required only when dealing in residential real estate sale transactions.

A residential sale is defined as the sale of improved residential property of four or fewer units, the sale of unimproved residential property intended for use as four or fewer units, or the sale of agricultural property of 10 or fewer acres.

Furthermore, the disclosure requirements do not apply to:

nonresidential transactions;
the rental or leasing of real property, unless an option to purchase all or a portion of the property improved with four or fewer residential units is given;
auctions;
appraisals; and
dispositions of any interest in business enterprises or business opportunities, except for property with four or fewer residential units.

Note that licensees are no longer required to give customers a written disclosure when a transaction broker relationship is chosen.

12
Q

Residential Sale

A

Defined in Florida license law to mean the sale of improved residential property of four or fewer units, the sale of unimproved residential property intended for use as four or fewer units, or the sale of agricultural property of ten or fewer acres.

13
Q

Transaction Broker Relationship

A

Under Florida law, *it is presumed that all licensees are operating as transaction brokers unless a single agent or no brokerage relationship is established, in writing, with the customer.

A transaction broker is a broker who provides limited representation to a buyer, a seller, or both in a real estate transaction, but who does not represent either party in a fiduciary capacity or as a single agent.

In this relationship, the seller (or the buyer) is considered to be a customer of the real estate broker and not a principal.

In a transaction broker relationship, the buyer or seller (customer) is not responsible for the acts of a licensee.

Chapter 475 defines customer to mean a member of the public who is or may be a buyer or a seller of real property and may or may not be represented by a real estate licensee in an authorized brokerage relationship.

Therefore, the seller (or the buyer) who chooses limited representation is a customer under the transaction broker relationship.

A licensee may enter into a transaction broker relationship with both parties (buyer and seller) in a real estate transaction.

The seven duties of the transaction broker in this limited form of representation are as follows:

  1. Deal honestly and fairly.

Licensees owe a duty of good faith and honesty to customers.

A broker’s customers are entitled to rely on any material statement related to a real estate transaction that is made by a licensee.

  1. Account for all funds.

The broker must account for all funds entrusted to him or her with regard to a real estate transaction.

Such holdings are considered trust funds or escrow funds.

Money and valuables entrusted to a broker must be kept separate from the broker’s funds.

The broker is not entitled to any trust or escrow funds until the transaction is concluded at a title closing.

Brokers are required to keep complete records of all transactions and funds as well as to make available to the Department of Business and Professional Regulation (DBPR) such books, accounts, and records as will enable the DBPR to determine whether the broker is in compliance with Chapter 475.

  1. Use skill, care, and diligence in the transaction.

The broker, for example, must keep informed of current zoning and other developments that may affect the value of the property and must use diligence in facilitating the transaction.

Questions sometimes arise regarding whether certain information concerning the seller or previous occupants of a property must be disclosed to prospective buyers.

Federal fair housing law and the Florida statutes specifically mandate that the fact that an occupant of real property is infected or has been infected with human immunodeficiency virus (HIV) or diagnosed with acquired immune deficiency syndrome is not a material fact in a real estate transaction.

This is personal medical information and must not be disclosed without prior authorization.

Furthermore, Florida statute mandates the fact that a property was, or was at any time suspected to have been, the site of a homicide, suicide, or death is not a material fact in a real estate transaction.

A cause of action will not arise against a property owner or a real estate licensee for failure to disclose any of the information or events listed above.

  1. Disclose all known facts that materially affect the value of residential real property and are not readily observable to the buyer.

Licensees have a duty to disclose to buyers all known facts that materially affect the value of residential property.

For example, a licensee is obligated to inform the buyer if there are cracks in the tile floor under the wall-to-wall carpeting caused from the foundation settling.

  1. Present all offers and counteroffers in a timely manner.

Unless a party has previously directed the licensee otherwise in writing, the licensee must present all oral and written offers and counteroffers in a timely manner even if a valid contract exists.

  1. Exercise limited confidentiality, unless waived in writing by a party.

This limited confidentiality will prevent disclosure that the seller will accept a price less than the asking or listed price; that the buyer will pay a price greater than the price submitted in a written offer; of the motivation of any party for selling or buying property; that a seller or buyer will agree to financing terms other than those offered; or of any other information requested by a party to remain confidential.

  1. Perform any additional duties that are mutually agreed to with a party.

A real estate licensee must be careful not to accept duties beyond the scope of limited representation.

To do so might create an unintended fiduciary relationship with a customer.

For example, a transaction broker may not promise complete allegiance to a customer because to do so could be interpreted by a court of law to have created a fiduciary relationship.

In a transaction broker relationship, the parties to a real estate transaction are giving up their rights to the undivided loyalty of a licensee.

This aspect of limited representation allows a licensee to facilitate a real estate transaction by assisting both the buyer and the seller.

However, a licensee will not work to represent one party to the detriment of the other party when acting as a transaction broker to both parties.

Real estate licensees are no longer required to give customers a written transaction broker notice.

However, licensees must still fulfill the duties of a transaction broker when that form of representation is selected.

The seven duties listed above apply to all real estate transactions (residential and otherwise) when the parties have agreed to a transaction broker relationship.

14
Q

Single Agent Relationship

A

*A broker who represents either the buyer or the seller (but not both) and has a fiduciary relationship with the party represented.

A seller (or a buyer) may want to be represented by a real estate broker.

In this case, the real estate broker is a single agent who represents the seller as a fiduciary in selling the home or the buyer in finding a home.

The Florida real estate license law defines a single agent as a broker who represents, as a fiduciary, either the buyer or the seller, but not both, in the same transaction.

In a single agent relationship, the seller (or the buyer) is the principal and the real estate broker is the agent.

The term principal is used to mean the party with whom a real estate licensee has entered into a single agent relationship.

Subagents are persons authorized to assist and represent the agent.

A subagent has the same duties as the agent.

A broker’s sales associates are general agents of the broker and subagents of the broker’s principals.

For example, in a single agent relationship, the broker is an agent of the principal.

The broker’s sales associates and broker associates are subagents of the broker’s principals.

Sales associates and broker associates owe the same fiduciary obligations to the broker’s principals as does their broker.

Note that this is true regardless of whether the associates, for tax purposes, are employees or independent contractors of the broker.

15
Q

The Nine Duties

A

The nine duties a real estate licensee owes to a buyer or seller who engage the real estate brokerage as a single agent are as follows:

  1. Deal honestly and fairly. See Topic 4.4:

Transaction Broker Relationship for explanation.

  1. Loyalty.

The agent as fiduciary in a real estate transaction must avoid any situation that might breach the duty of undivided loyalty to the principal.

The overriding rule is that a broker may not adopt an attitude that is adverse to the interests of the principal or act for himself or herself or some other person whose interests are contrary to those of the principal.

Loyalty (faithfulness) requires the broker to always place the principal’s interests above those of other persons with whom the broker deals.

Courts have ruled (case law) that for brokers to be loyal to their principals, they cannot exercise duties in such a manner as to profit themselves or anyone else at the expense of the principal.

The duty of loyalty includes, for example:
obtaining the most favorable price and terms for the principal;
acting on behalf of the principal;
not acting for parties with adverse interest in the same transaction;
never concealing the identity of the purchaser to induce the principal to sell;
disclosing to the principal if the agent becomes personally interested in the principal’s property; and
never advancing the agent’s or another person’s interest at the expense of the principal.

  1. Confidentiality.

Much of the information a broker gains while employed by the principal is confidential.

An agent may not reveal to a third party, without the principal’s permission, personal or private information that might lessen the principal’s bargaining position.

For example, a licensee may not tell a buyer that a seller is forced to sell owing to poor health or loss of a job without the principal’s permission.

Brokers may not divulge confidential information learned during the course of the single agency even after the transaction is concluded and the agent-principal relationship is ended.

A broker is never free to use confidential information to the disadvantage of or reveal any harmful or unfavorable information about a former principal.

  1. Obedience.

An agent is obligated to act in good faith according to the principal’s lawful instructions.

The broker-agent is at all times obligated to act in conformity with the principal’s instructions as long as those instructions are legal and relevant to the contractual relationship. If a broker feels that carrying out the principal’s legal directions will harm the principal, then the broker must promptly inform the principal of all known facts along with the broker’s opinion. However, if the principal will not change the instructions, the broker must either carry them out or withdraw from the relationship.

Brokers may not violate the law.

For example, if a principal instructs a listing broker not to show the property or sell to a member of a particular minority or ethnic group, the broker may not obey the principal’s instructions because doing so would violate the law. In such an instance, the broker must inform the principal that to restrict certain groups of people from seeing or purchasing a listed property is a violation of the fair housing laws.

  1. Full disclosure.

It is a broker-agent’s duty to keep the principal fully informed at all times of all the facts or information that might affect the transaction or the value of the property. An agent is obligated to disclose facts regarding a property’s true worth. Agents may be held responsible for material facts they should have known and communicated to their principal but did not. Also, broker-agents must inform their seller principals, for example, of the buyer’s financial condition, the status of the earnest money deposit, or if a personal relationship exists between the agent and the buyer. All material facts must be revealed to the principal even if the disclosure of such facts might cause the transaction to fail.

Full, fair, and prompt disclosure also includes notifying the principal if the broker is personally interested in buying the listed property. In such an event, the broker must clearly terminate the agent-principal relationship and inform the principal of all facts regarding the property that the broker has learned while in an agent’s capacity. Otherwise, the broker could buy from the principal and subsequently sell at a higher price and keep the profit (“overage,” “secret profit,” or “secret commission”). To do so could be construed as fraud, misrepresentation, concealment, and/or dishonest dealing and could expose the broker to liability to both seller and buyer for the full amount of the secret profit. It might further give rise to disciplinary proceedings against the licensee.

  1. Account for all funds. See Topic 4.4:

Transaction Broker Relationship for explanation.

  1. Skill, care, and diligence in the transaction.

A broker’s obligations extend beyond merely selling a listing or locating a suitable property for a buyer. A real estate broker holds himself or herself out to the public as specially qualified by reason of experience, ability, and knowledge.

If a broker’s principal is a buyer, then the broker should attempt to obtain the property at the lowest price possible.

If the broker’s principal is a seller, then the broker should try to get the seller the most favorable price. This includes researching a property thoroughly to advise the seller of a reasonable listing price.

Brokers should discuss with their principals any anticipated tax consequences and advise them to seek expert tax advice when appropriate. The duty of using skill, care, and diligence does not end with the signing of a contract.

It continues via numerous services by the agent until the transaction is closed. If an agent does not perform with the required degree of skill, care, and diligence, the agent becomes liable to the principal for the damages the principal may have sustained and may be disciplined by the FREC.
8. Present all offers and counteroffers in a timely manner. See Topic 4.4: Transaction Broker Relationship for explanation.

  1. Disclose all known facts that materially affect the value of residential real property and are not readily observable to the buyer. See Topic 4.4: Transaction Broker Relationship for explanation.

The nine duties listed above apply to all real estate transactions (residential and otherwise) when the parties have agreed to a single agent relationship.

16
Q

Brokerage Relationship Limitations

A

If the brokerage firm has a transaction broker relationship with the seller, the brokerage firm can also work with the buyer, in the same transaction, as a transaction broker or in no brokerage relationship.

The brokerage firm cannot represent the buyer as a single agent if the firm has a transaction broker relationship with the seller.

If the brokerage firm is representing the seller as a single agent, the brokerage firm can work with the buyer, in the same transaction, in no brokerage relationship.

The brokerage firm cannot represent the buyer as a single agent or work with the buyer as a transaction broker if the firm is also representing the seller as a single agent.

The brokerage relationship limitations described above apply, even if the buyer and seller are working with different sales associates in the same brokerage firm.

A single agent owes nine duties to the principal.

Four of the duties apply only to single agent relationships:

C Confidentiality
O Obedience
L Loyalty
D Disclosure (full)

17
Q

No Brokerage Relationship (Nonrepresentation)

A

The seller (or the buyer) can choose not to be represented by a real estate broker.

In such a situation, the broker would simply facilitate the sale (or the purchase) of real property without entering into either a single agent relationship or transaction broker relationship.

A broker working in a no brokerage relationship capacity with a seller can enter into a listing agreement with that seller and be paid a commission.

Similarly, a brokerage firm working in a no brokerage relationship capacity can work with a buyer.

Florida law does not require that prospective buyers and sellers be represented.

A real estate licensee working in a no brokerage relationship capacity with a buyer or a seller has the following three duties (see below):

Deal honestly and fairly.

Disclose all known facts that materially affect the value of residential real property that are not readily observable to the buyer.

Account for all funds entrusted to the licensee.

18
Q

Disclosure Requirements

A

The duties of the chosen relationship must be fully described and disclosed in writing to a buyer or the seller, either as a separate and distinct disclosure document or included as part of another document, such as a listing agreement or buyer broker agreement.

If the disclosure document is incorporated into a listing or buyer broker agreement, a signature line must be inserted immediately following the disclosure information.

It is not sufficient to only have a signature line at the bottom of the listing or buyer broker agreement.

The single agent disclosure must be made before, or at the time of, entering into a listing agreement or an agreement for representation, or before the showing of property, whichever occurs first.

The no brokerage relationship notice must be disclosed in writing before the showing of property.

When incorporated into other documents, the required disclosure notice must be of the same size as, or larger type than, other provisions of the document and must be conspicuous in its placement to advise customers (or principals in a single agent relationship) of the brokerage duties.

The first sentence must be printed in uppercase and bold type.

The list of duties must be presented on the disclosure in the same order as listed in the statute.

The disclosure notice may include information concerning the real estate brokerage such as the company name and logo, address, phone number, email address, and so forth.

Although the disclosure notice provides for the customer’s (principal’s) signature, the signature is not mandatory (except for the transition to transaction broker notice and the designated sales associate disclosure discussed later in this unit).

If a customer or principal desires to proceed with the relationship but refuses to sign or initial the disclosure document, the licensee should include a copy of the disclosure in the file with a note indicating the date the disclosure was presented and that the buyer or the seller refused to sign the document.

Under Florida law, it is presumed that all licensees are operating as transaction brokers unless another brokerage relationship is established.

Therefore, there is no requirement to give a written transaction broker disclosure notice to the buyer and/or the seller.

19
Q

Exceptions to Disclosure Requirements

A

Certain interactions a licensee has with buyers and sellers do not constitute a brokerage relationship.

These situations are described in the real estate license law.

When a licensee has an encounter with a buyer or seller under these specific situations, the licensee is not required to give a prospective buyer or a prospective seller a disclosure notice.

The six situations that do not create a brokerage relationship are as follows:

  1. When the licensee knows that a single agent or a transaction broker represents a prospective seller or a prospective buyer
  2. At a bona fide “open house” or model home showing that does not involve eliciting confidential information; the execution of a contractual offer or an agreement for representation; or negotiations concerning price, terms, or conditions of potential sale
  3. During unanticipated casual encounters between a licensee and a prospective seller or a prospective buyer that do not involve eliciting confidential information; the execution of a contractual offer or an agreement for representation; or negotiations concerning price, terms, or conditions of a potential sale
  4. When responding to general factual questions from a prospective seller or a prospective buyer concerning properties that have been advertised for sale
  5. Situations in which a licensee’s communications with a prospective buyer or a prospective seller are limited to providing either written or oral communication that is general, factual information about the qualifications, background, and services of the licensee or the licensee’s brokerage firm
  6. When an owner is selling new residential units built by the owner and the circumstances or setting should reasonably inform the potential buyer that the owner’s employee or single agent is acting on behalf of the owner, whether because of the location of the sales office or because of office signage or placards or identification badges worn by the owner’s employee or single agent

If during any of the situations described above, a member of the public begins to provide confidential information or begins to negotiate concerning price, terms, and so forth, the licensee would at that point present the person with the appropriate disclosure notice depending on the circumstances and desire of the parties.

20
Q

Transition to Another Relationship

A

A licensee may change from one brokerage relationship to another as long as the buyer or the seller, or both, give consent before the change occurs.

For example, a single agent relationship may be changed to a transaction broker relationship at any time during the relationship between the agent and principal, provided the agent first obtains the principal’s written consent to the change in relationship.

To gain the principal’s written consent to a change in relationship, the buyer or seller (or both) must either sign or initial the consent to transition to transaction broker notice set forth in Chapter 475.

Note that this disclosure notice requires the buyer’s or seller’s signature (or initials) before the licensee may change from one brokerage relationship to an-other.

If the principal refuses to sign or initial the consent to transition notice, the broker must continue to act as a single agent.

Assume that a brokerage firm represents seller Rebecca as a single agent.

Buyer Mike enters the brokerage firm with the purpose of finding a home to purchase.

Buyer Mike is not working with any other real estate company. Buyer Mike indicates that he wants the real estate firm to represent him in the real estate negotiations and to work solely in his best interest.

Therefore, Buyer Mike has indicated to the licensee that he desires single agency representation. The licensee must give Buyer Mike the single agent notice before entering into a buyer agency agreement or before showing Mike any property.

Because Buyer Mike has entered into a single agent relationship with the brokerage firm, the sales associate may not show Seller Rebecca’s home to the buyer.

This is because a broker may not be a single agent of the buyer and a single agent of the seller in the same transaction.

This is true even if Rebecca and Mike use different sales associates with the same company because the single agent agreement is with the brokerage firm.

If a real estate broker represents both parties in a transaction in a fiduciary capacity, an illegal dual agent relationship is created.

Because the seller and the buyer have each entered into single agent relationships with the brokerage firm, they must both give written consent to transition (change) to transaction broker relationships in order for Buyer Mike to be shown Seller Rebecca’s home.

This is the purpose of allowing a licensee to transition from one agency status to another.

The consent to transition to transaction broker notice includes wording regarding the principal’s permission to allow the single agent to transition to a transaction broker.

The notice also includes a list of the duties that a transaction broker owes to the customer. The consent to transition to transaction broker notice can either be a separate document or be included as part of another document, for example, in the listing agreement.

21
Q

Designated Sales Associates

A

In a nonresidential real estate transaction where the buyer *and seller *each have assets of $1 million or more, the broker at the request of the buyer and seller may designate two sales associates to act as single agents for the buyer and seller in the same transaction.

*The two sales associates in such an arrangement are called designated sales associates.

Note that in a residential transaction this would be an illegal dual agency.

In this arrangement, the broker serves as an advisor to each designated sales associate—not to the buyer or the seller.

The broker serves as a neutral party helping to facilitate the process without giving guidance or representation to the parties in the transaction.

The designated sales associates have the duties of a single agent and must give the buyer and the seller a special disclosure notice.

The buyer and seller must sign the disclosure notice stating that their assets meet the threshold and requesting that the broker use the designated sales associate form of representation.

A transition notice is not required.

22
Q

Recordkeeping and Retention

A

Florida law requires brokers to retain agreements that engage the services of a broker.

Brokers must retain brokerage relationship disclosure documents and buyer broker agreements for five years for all residential transactions that result in a written contract to purchase and sell real property and all nonresidential transactions that use designated sales associates.

Documents may be stored in a digital format. Files of properties that have failed to close must also be retained.

If a transaction fails to close, the licensee should retain the brokerage relationship disclosure documents with the purchase and sale contract, escrow documentation, and other documents associated with the property, and place them in the “dead” (failed to close) file.

The Commission may discipline a licensee for failure to abide by any provision in Section 475.278, F.S., including the duties owed to customers and principals, disclosure requirements, and record-keeping requirements set forth in law.

23
Q

Terminating a Brokerage Relationship

A

Generally speaking, a transaction broker relationship or a single agent relationship is terminated when the objectives have been accomplished according to the terms of the contract that created the brokerage relationship and notice is given to the other party.

A principal is justified in revoking a single agent relationship with the broker if the broker-agent breaches any of the fiduciary duties.

A brokerage relationship between a principal (or a customer) and a broker may be terminated for any one of the following reasons:

  • Brokerage relationship’s purpose is fulfilled (for example, finding a ready, willing, and able buyer).
  • Parties mutually agree to terminate the brokerage relationship.

-Terms of the agreement expire.
(If no term is specified, the courts have ruled that a brokerage relationship may be terminated after a “reasonable” time.)

  • Broker renounces the single agent relationship by giving notice to the principal or the broker renounces the transaction broker relationship by giving notice to the customer.
  • Principal revokes a single agent relationship or the customer revokes a transaction broker relationship, by giving notice.

(In this case, the principal or the customer may be liable for damages, such as advertising expenses, incurred by revoking the brokerage relationship prior to the termination date of the listing contract or exclusive buyer contract.)

  • Seller’s broker or seller dies before the broker finds a ready, willing, and able buyer.
  • Buyer’s broker or buyer dies before the broker finds a suitable property for the buyer.
  • Property is destroyed or condemned by eminent domain.
  • Principal or customer goes bankrupt.
24
Q

Misrepresentation and Fraud

A

The law allows real estate agents to enthusiastically describe the value of real estate and/or the potential of the property.

Licensees may not, however, exaggerate, conceal, or misrepresent by making statements they know to be untrue.

*Puffing is the term used to describe a licensee’s boasting of a property’s benefits.

For example, the statement, “The apartment has a fantastic view,” is puffing because the prospect is clearly able to assess the view, and the statement is the licensee’s opinion.

However, if the licensee had instead said, “The apartment has a fantastic view of the lake,” when in fact the lake is not visible from the apartment, the statement is untrue and would be illegal misrepresentation.

Misrepresentation is the misstatement of fact or the omission or concealment of a factual matter.

Misrepresentation can lead to fraud.

The elements of a cause of action for fraud are:

(1) the licensee made a misstatement or failed to disclose a material fact;
(2) the licensee either knew or should have known that the statement was not accurate or that the undisclosed information should have been disclosed;
(3) the party to whom the statement was made relied on the misstatement; and (4) the party to whom the statement was made was damaged as a result.

The law prohibits deceptive practices.

For example, it is fraudulent and dishonest dealing by trick, scheme, or device for a licensee to:

  • knowingly sell or offer for sale any property covered by a mortgage that also covers other property sold, unless the particular property sold or offered for sale may be released from the mortgage any time before foreclosure sale on payment of an amount less than that remaining due from the purchaser after the sale;
  • induce any person to buy property by promising that the licensee or the owner will resell or repurchase the property at any future time, unless there is proof that the guaranteed repurchase agreement has been approved by an agency of the State of Florida or there is evidence that the repurchase has been accomplished as promised;
  • offer lotteries and schemes of sale involving the sale of chances or similar devices whereby it is represented that the purchaser is to receive property in an offer to be determined by chance, whereby the price will depend on chance or the amount of sales made, or whereby the buyer may or may not receive any property; and
  • invite the public to solve puzzles on the pretense of a drawing to receive property free, at a nominal price, or at cost.

Any representation made by a broker may later become the basis for charges of fraud, breach of contract, or breach of trust.

In general, a purchaser has only a limited right to rely on the statements of a broker.

However, if a broker invites trust and then betrays that trust, the broker is guilty of breach of trust.

This legal concept brings to light an important ethical principle relating to those engaged in the sale of real estate:

Whenever the trust or confidence of a buyer or seller is invited, by actions or words, that trust or confidence, once given, must not be betrayed.

25
Q

Professionalism and a Code of Ethics

A

The real estate business is becoming increasingly complex, with rapid changes and constant pressures. A real estate brokerage firm is only as good as its reputation, and a good reputation can result only from a history of ethical business practices.

Because just one dishonest or unethical person in a firm may destroy years of honest effort by others, ethical service is the only focal point around which a lasting reputation and career can be built.

Licensees must strive for individual ethical conduct and strive to maintain a high standard of ethical professionalism within the industry.

Most professional and trade organizations have requirements designed to raise the professional and ethical standards of their members. The National Association of REALTORS® (NAR) adopted its Code of Ethics in 1913.

The Code emphasizes fair dealings in three major areas:

(1) with clients,
(2) with other real estate brokers, and
(3) with the general public.

Through the years, NAR’s “Code of Ethics and Standards of Practice” has been updated and has proved helpful to everyone in the real estate business because it contains practical applications of business ethics and statements of good practices that everyone in the business should know and carefully follow.

Today, to maintain membership in NAR, REALTOR® members must complete three hours of ethics training every four years.

26
Q

Summary of Important Points

A

A person who delegates authority to another is the principal.

A person who accepts the authority is the agent.

An agent is authorized to represent and act for the principal.

The agency relationship creates a fiduciary relationship with the principal.

A fiduciary acts in a position of trust and confidence with the principal.

A real estate licensee may act as a special agent with buyers or sellers. This occurs when the buyer or seller, but not both, and the brokerage firm enter into a single agent relationship.

In this relationship, the buyer or seller is the principal and the broker is the agent.

In all real estate transactions, there are three options concerning the role the real estate brokerage firm will assume:

(1) transaction broker for the buyer and/or the seller,
(2) single agent of either the buyer or the seller, and
(3) no brokerage relationship for the buyer and/or the seller.

Licensees may not operate as dual agents.

A dual agent is a broker who represents both the buyer and the seller as a fiduciary.

The duties and obligations in each type of brokerage relationship apply to all real estate transactions.

A written disclosure is required for residential transactions when a single agent relationship or a no brokerage relationship is chosen.

The single agency disclosure must be made before, or at the time of, entering into a listing agreement or an agreement for representation, or before the showing of property, whichever occurs first. The no brokerage relationship disclosure must be made before the showing of property.

A residential sale is defined as the sale of improved residential property of four or fewer units, the sale of unimproved residential property intended for use as four or fewer units, or the sale of agricultural property of 10 or fewer acres.

Under Florida Law, it is presumed that all licensees are operating as transaction brokers unless another brokerage relationship is chosen.

A transaction broker provides limited representation to a buyer, a seller, or both, but does not represent either in a fiduciary capacity or as a single agent.

License law mandates that a real estate broker working in a no brokerage relationship capacity has three duties:

(1) deal honest and fairly,
(2) disclose all known facts that materially affect the value of residential real property that are not readily observable to the buyer, and
(3) account for all funds entrusted to the licensee.

License law mandates that a real estate broker working as a transaction broker has the duties required in a no brokerage relationship plus four additional duties:

(1) use skill, care, and diligence;
(2) present all offers and counteroffers;
(3) exercise limited confidentiality; and
(4) perform additional duties that are mutually agreed to.

F.S. 475 mandates that a real estate broker working as a single agent has the duties required in a no brokerage relationship plus the first two additional duties required in a transaction broker relationship.

Four duties apply exclusively to a broker working as a single agent:

(1) confidentiality,
(2) obedience,
(3) loyalty, and
(4) full disclosure.

A real estate broker may change from a single agent relationship to a transaction broker relationship only with the express written permission of the principal. The principal must sign or initial the Consent to Transition to Transaction Broker disclosure before the change can occur.

Brokers must retain brokerage relationship disclosure documents and buyer broker agreements for five years for all residential transactions that result in a written contract to purchase and sell real property and all nonresidential transactions that use designated sales associates.

In a nonresidential transaction and where the buyer and the seller each have assets of $1 million or more, the broker, at the request of the buyer and the seller, may designate two sales associates to be designated sales associates.

In such situations, one sales associate acts as a single agent for the buyer, and the other sales associate acts as a single agent for the seller.

The broker is not considered a dual agent but rather a neutral party advising the designated sales associates to help facilitate the process.

The buyer and seller must sign the Designated Sales Associate disclosure listing the duties of a single agent and affirming that the buyer and seller each have assets of at least $1 million.