Download Chapter 7 Study Guide and more Lecture notes Real Estate Management in PDF only on Docsity!
Chapter 7 Study Guide Brokerage Relationships: Laws & Practices Big Picture o Chapter 7 is about who the broker represents, what duties are owed, and when those duties begin. o This chapter answers three major questions: Who is the broker working for? What does the broker owe that person? What must the broker disclose to everyone else? o This section is heavily tested because agency affects: Client duties Customer treatment Disclosure obligations Dual agency Designated agency Material facts Misrepresentation Confidentiality Broker discipline
1. Laws and Rules Behind Chapter 7 A. Common Law of Agency o Common law agency is the traditional legal foundation for agency relationships. o It creates the basic idea that an agent acts on behalf of another person. o In real estate, the broker or firm acts on behalf of a client. o This law connects to: Fiduciary duties Authority Loyalty Disclosure Confidentiality Obedience Liability for actions B. Contract Law o Agency relationships are usually created by agreement. o In real estate, that agreement may be: Written Oral in limited situations Implied by conduct o Contract law matters because agency agreements define: Who is represented What services are owed When the relationship begins When it ends Compensation, if applicable C. North Carolina Real Estate License Law o License law tells brokers what they can and cannot do. o It is also the basis for discipline by the North Carolina Real Estate Commission. o The Adventure Guide identifies NC Real Estate License Law as one of the laws governing brokerage relationships. D. North Carolina Real Estate Commission Rules o NCREC rules explain how license law is applied in practice. o These rules govern things like: Agency disclosure Delivery of documents Disclosure of material facts Handling client/customer relationships Avoiding misrepresentation o Your guide lists NC Real Estate Commission Rules as part of the legal framework for brokerage relationships. E. NCGS 93A-6: Prohibited Acts o This is a major law to connect to Chapter 7.
o The Commission can discipline a broker for: Misrepresentation Omission of material fact Making false promises Acting for multiple parties without consent Improper or dishonest dealing Discriminatory practices Practicing law Failure to deliver required documents Violation of Commission rules o Your Adventure Guide specifically lists misrepresentation and omission of material fact , false promises , and acting for multiple parties without consent under NCGS 93A-6 prohibited acts. F. Commission Rule 58A .0104: Agency Agreements and Disclosure o This is one of the most important rules for Chapter 7. o It connects to: Agency disclosure First substantial contact Working With Real Estate Agents disclosure Discussing agency options Explaining who the broker represents o Your guide specifically connects agency disclosure to A.0104(c) and summarizes the disclosure process as Disclose, Discuss, Decide.
2. Core Agency Vocabulary A. Agency o Agency means acting on behalf of another person. o In real estate, this means the broker or firm is authorized to represent a client. o Simple memory: Agency = acting for someone else. B. Principal / Client o The principal is the person who hires or authorizes the agent. o In brokerage, the principal is usually called the client. o The client receives fiduciary duties. o Examples: Seller signs a listing agreement with a firm. Seller = client/principal Buyer signs a buyer agency agreement with a firm. Buyer = client/principal C. Agent o The agent represents the client. o In North Carolina real estate, the firm is usually the agent, and affiliated brokers act through the firm. o The agent owes fiduciary duties to the client. D. Subagent o A subagent assists the agent and owes fiduciary duties to the same client. o Example: A listing firm represents a seller. Brokers affiliated with that firm work with the seller through subagency. o In seller subagency, a buyer may remain a customer while the broker owes duties to the seller. E. Third Party o A third party is someone outside the agency relationship. o Example:
o Many courses use OLDCAR or OLD CAR : O bedience L oyalty D isclosure C onfidentiality A ccounting R easonable care / skill / diligence C. Obedience o The agent must follow the client’s lawful instructions. o The agent must not follow illegal instructions. o Example: Seller says, “Do not show my home to buyers from a certain protected class.” Broker must refuse because the instruction is illegal. D. Loyalty o The agent must put the client’s interests ahead of the agent’s own interests. o This connects to avoiding: Self-dealing Secret profits Undisclosed conflicts Acting for multiple parties without consent E. Disclosure o The agent must disclose important information to the client. o This includes information that may affect the client’s decisions. o Example: If a seller’s agent learns a buyer may be willing to pay more, that may matter to the seller-client. F. Confidentiality o The agent must protect the client’s confidential information. o This duty can continue after the agency relationship ends. o Examples of confidential information: Seller will accept less Buyer will pay more Client is under financial pressure Client’s motivation for buying/selling o Important distinction: Confidentiality does not allow a broker to hide material facts. G. Accounting o The agent must properly handle money or property entrusted to them. o This connects to trust money and earnest money rules, though those are covered more heavily elsewhere. H. Reasonable Care / Skill / Diligence o The agent must perform competently. o This does not mean the broker must be an attorney, inspector, surveyor, or environmental expert. o It does mean the broker must recognize red flags and recommend proper experts when needed.
5. Authority of the Agent A. Actual authority o Authority the client intentionally gives the agent. o Can be express or implied. B. Express authority o Clearly stated authority. o Usually written or spoken. o Example: A listing agreement says the broker may market the property in MLS. C. Implied authority
o Authority that is not directly stated but is reasonably necessary to carry out express authority. o Example: If a seller authorizes a firm to market a property, the firm may take ordinary marketing steps unless restricted. D. Apparent authority o Authority that appears to exist because of the actions or words of the principal. o It can create problems when a third party reasonably believes the agent has authority. o Exam idea: Apparent authority is about how the situation appears to the outside party. E. Employment authority o Authority created by an employment or agency agreement. o In real estate, this usually connects to listing agreements or buyer agency agreements.
6. Types / Classifications of Agency A. Universal agency o Broadest authority. o Agent can act for the principal in nearly all matters. o Rare in real estate brokerage exam scenarios. o Example: Someone with a broad power of attorney. B. General agency o Agent handles a range of matters in a particular business or area. o Example: Property manager may be a general agent for the owner in managing a property. C. Special agency o Limited agency for a specific act or transaction. o Most real estate brokers are special agents. o Example: Listing broker is hired to help sell one property. Buyer’s agent is hired to help a buyer purchase property. D. Why this matters o Exam trap: Brokers are not usually universal agents. Brokers usually have limited authority and cannot bind clients unless specifically authorized. 7. Creation of Agency Relationships A. Express agency o Created by written or oral agreement. o Example: Buyer signs a buyer agency agreement. Seller signs a listing agreement. o In NC, buyer agency may begin orally in limited circumstances, but must be in writing before an offer is prepared/presented. B. Implied agency o Created by the actions or conduct of the parties. o Risky because it can happen unintentionally. o Example: Broker gives a buyer advice like “I’ll help you get the lowest price,” even though no buyer agency was discussed. o Exam trap: Payment of money alone does not necessarily create agency.
9. Working With Buyers A. Buyer as customer o The buyer is not represented. o Broker may represent the seller. o Broker owes buyer honesty and material fact disclosure. o Broker does not owe buyer loyalty or confidentiality. B. Buyer as client o Buyer is represented by a buyer agent. o Broker owes buyer fiduciary duties. o Buyer agency agreement may begin orally, but must be written before preparing/presenting the offer. o The guide’s Chapter 8 section reinforces that exclusive buyer agency can work orally initially but must be in writing prior to preparing the first offer. C. Buyer agency responsibilities o Explain agency. o Get agreement signed at the required time. o Qualify the buyer. o Gather property information. o Disclose agency to others. o Disclose material facts. o Assist with offers and transaction. o These responsibilities are listed in the Adventure Guide’s agency contract section. D. Exam trap o A buyer being friendly with a broker does not automatically mean the broker represents the buyer. o The key question is: Was agency created? Was it disclosed? Who is the client? 10. Seller Agency A. Seller as client o Seller agency is created when a seller hires a firm to list or sell property. o The firm represents the seller. o Affiliated brokers owe fiduciary duties to the seller. B. Buyer as customer in seller agency o If the listing firm works with an unrepresented buyer, the buyer is a customer. o The broker still owes honesty and material fact disclosure. o The broker cannot disclose the seller’s confidential information. C. Seller subagency o A broker may work as a seller’s subagent. o Buyer remains a customer. o Broker owes fiduciary duties to seller. o Your guide says that in seller subagency, the buyer remains a customer, the broker must work for someone, and consent of both buyer and seller is needed to act as seller’s subagent. D. Co-brokerage seller subagency o A firm showing another firm’s listing may act as seller’s subagent if proper consent exists. o The buyer remains a customer. o The seller remains the client. o Your guide says if the seller or listing firm does not agree, the co-brokerage firm cannot show the property in that subagency arrangement. 11. Dual Agency A. Definition o Dual agency occurs when one firm represents both buyer and seller in the same transaction. o The firm is on both sides. o This is allowed only with proper disclosure and consent.
B. Why dual agency is sensitive o The firm owes fiduciary duties to both clients. o But some duties become limited because the firm cannot fully advocate against one client for the benefit of the other. o The broker must protect confidential information for both parties. C. Consent is required o Acting for multiple parties without consent is a prohibited act under NCGS 93A-6. o Exam memory: Dual agency without consent = discipline problem. D. What a dual agent should not do o Reveal seller’s bottom line. o Reveal buyer’s top price. o Favor one party over the other. o Use one client’s confidential motivation against them. o Pretend to be only on one side. E. What a dual agent must still do o Disclose material facts. o Treat both parties honestly. o Protect confidential information. o Follow lawful instructions that do not conflict with duties to the other client.
12. Designated Dual Agency A. Definition o Designated dual agency is a form of dual agency. o The firm represents both sides, but the BIC designates one broker to represent the seller and another to represent the buyer. o Your guide describes designated agency as a form of dual agency that gives clients more representation but still requires disclosure and consent from both clients. B. How it is formed o The BIC designates one licensee for seller and one for buyer. o Company policy matters. o The firm must have proper procedures. C. Confidential information protection o The firm must create policies and procedures to protect each client’s: Confidential information Personal information Motivational information o Your guide specifically lists those required protections under designated agency rules. D. Who cannot be designated o A licensee cannot be designated if they already possess confidential, personal, or motivational information about the other party. o Example: Broker met with seller and learned seller’s bottom line. That broker cannot later become the buyer’s designated agent in the same transaction. E. BIC and provisional broker rule o A BIC and their provisional broker in the same office cannot be designated agents opposite each other in the same transaction. o They must be dual agents. o Your guide states that a BIC and their provisional broker can be in the transaction together, but cannot be designated dual agents; they must be dual agents. F. Different office location exception o Your guide notes that a BIC and a provisional broker from another
Broker guesses square footage instead of using proper sources. D. Omission o Leaving out important information. E. Willful omission o Intentionally hiding a material fact. o Example: Broker knows the HVAC is broken and chooses not to tell buyer. o Your guide connects failure to disclose a material mechanical system issue to willful omission. F. Negligent omission o Failing to disclose because the broker should have known. o Example: Broker ignores obvious water stains and never investigates or discloses. G. Puffing o Opinion or exaggeration, not a factual claim. o Example: “This is the prettiest house in the neighborhood.” o Puffing is usually not treated the same as misrepresentation because it is opinion. H. False promise o A promise made without intent or ability to perform. o NCGS 93A-6 includes making false promises as a prohibited act. I. Exam memory o Puffing = opinion. o Misrepresentation = false statement. o Omission = leaving out required information. o Willful = intentional. o Negligent = careless / should have known.
15. Caveat Emptor and Broker Disclosure A. Caveat emptor o Means “buyer beware.” o The buyer has responsibility to inspect and investigate. o But this does not excuse the broker from disclosing material facts. B. How it works in NC o Buyer should perform due diligence. o Seller may make limited representations or no representations on certain forms. o Broker must still disclose material facts the broker knows or should reasonably know. o The Adventure Guide’s hot topics section states that even when seller checks “no representation,” the agent must still disclose what they knew and should have known. C. Memory o Buyer beware does not mean broker be quiet. 16. Self-Dealing and Conflicts of Interest A. Self-dealing o Self-dealing occurs when a broker secretly acts for their own benefit in a transaction. o Example: Broker buys property through another person without disclosing the broker’s interest. B. Conflicts of interest o Brokers must disclose interests in the property. o Brokers must disclose relationships to parties. o Your guide’s hot topics section specifically says brokers must disclose interests in the property and relationships to parties.
C. Examples of relationships that should be disclosed o Broker is related to buyer. o Broker has ownership interest. o Broker’s spouse is buyer. o Broker is buying for themselves. o Broker has financial interest in an entity involved. D. Exam memory o If the broker benefits personally or has a relationship, disclose.
17. Residential Property Disclosure Act Connection A. Why it appears in Chapter 7 vocabulary o This connects agency duties to seller disclosures. o Brokers must understand what sellers disclose and what brokers must still disclose. B. Seller responsibility o Seller completes the property disclosure. o Seller may choose “no representation” in some areas. o But that does not remove the broker’s material fact duty. C. Broker responsibility o Explain and assist with disclosure obligations. o Do not hide known facts. o Disclose material facts known or reasonably knowable. o Your guide notes that agents inform clients of rights/obligations, assist with the NC Residential Property Disclosure Act, and must still disclose what they knew and should have known. 18. Agency Road Map: How to Think Through a Scenario A. Step 1: Identify the broker’s firm o Who does the firm represent? o Seller? o Buyer? o Both? o Neither is usually not the NC default if brokerage services are being provided. B. Step 2: Identify the client o Who signed the agency agreement? o Who receives fiduciary duties? C. Step 3: Identify the customer o Who is not represented? o What must still be disclosed to them? D. Step 4: Look for first substantial contact o Did the consumer start sharing motivation, confidential needs, financial limits, or negotiation position? o If yes, agency disclosure is triggered. E. Step 5: Look for material facts o Property defects? o Legal use issues? o Mechanical systems? o Environmental issues? o Planned major changes? o If yes, disclose. F. Step 6: Check for dual agency o Same firm on both sides? o Buyer and seller both clients? o Consent obtained? o Designated agency allowed and properly formed? G. Step 7: Check for confidentiality o Is it a client secret? o Or is it a material fact? o Material facts must be disclosed. 19. High-Yield Chapter 7 Exam Traps A. “The buyer is nice, so they must be a client.” o Wrong. o Client status comes from agency relationship, not friendliness.
o Caveat emptor
21. Simple Memory Framework Agency = representation o Who does the broker work for? Client = fiduciary duties o Who gets loyalty, confidentiality, obedience, accounting, disclosure, and care? Customer = honesty and material facts o Who is not represented but still must be treated fairly? First substantial contact = agency discussion o When the consumer starts sharing confidential/motivational/financial details. Material fact = must disclose o Even if the client says not to. Dual agency = consent o Same firm representing both sides requires informed consent. Designated agency = protected separation o Same firm, different designated brokers, but only if rules are followed. Puffing vs. misrepresentation o Opinion is puffing. o False fact is misrepresentation. Caveat emptor does not erase broker duty o Buyer should investigate, but broker must disclose material facts.
