Buyers and sellers typically work with a licensed real estate salesperson or broker. It is important to ascertain if that person is working “for” you (you are the client) or “with” you (you are the customer). Most states will require that the licensee make early written disclosure concerning the agency relationship.
State licensing law requires anyone acting as a broker or salesperson to first obtain a real estate license this involves taking real estate classes, passing an examination and paying fees. The state has the power to revoke or suspend a licensee for violating any of the licensing laws.
Common examples of violations would be a misrepresentation, false advertising, undisclosed dual agency, secret profits, and commingling of client monies.
An agent is one who represents another, called the principal, in dealings with third persons. The best way to create an agency is using an express written contract, although agency can also be created after the fact through “ratification” by the principal of the agent’s acts.
The agent owes the principal fiduciary duties of good faith, full disclosure, confidentiality, obedience, accounting, and the exercise of reasonable skill and care.
An agency relationship can be terminated by expiration of the term, the death of either party, mutual rescission or revocation by the principal i.e., the principal has the power to revoke the agency at any time but may be liable for breach of the agency contract if the agent has done nothing wrong.
A listing is a written employment contract in which the owner authorizes a broker to deal with prospective buyers on behalf of the owner. The listing is a personal service contract that can neither be recorded nor assigned. The amount of commission is negotiable between owner and agent.
The main types of listings are the exclusive listings, open listings, and net listings. The Multiple Listing Service (MLS) is an organized “pooling” of listings by broker members.
The listing agent represents the seller; in some cases, the listing agent may offer to represent the buyer as well in what is called a dual agency. In other cases, the buyer may decide to retain the services of a buyer’s broker to represent the buyer exclusively in most cases, the buyer’s broker will be paid from an authorized commission split with the listing broker.
Key Words in a Real Estate Transaction
AGENCY– A relationship created when one person, the “principal,” delegates to another, the “agent,” the right to act on the principal’s behalf in business transactions and to exercise some degree of discretion while so acting. An agency gives rise to a fiduciary relationship and imposes on the agent, as the fiduciary of the principal, certain duties, obligations and high standards of good faith and loyalty.
AGENT– One who is authorized to represent and to act on behalf of another person (called the principal). A real estate broker is the agent of his client, be it the seller or buyer, to whom he owes a fiduciary obligation. A salesperson is the agent of the broker and does not have a direct personal contractual relationship with either the seller or buyer.
ATTORNEY-IN-FACT– One who is authorized by another to act in his place under a power of attorney.
BROKER– One who acts as an intermediary between parties to a transaction. A real estate broker is a properly licensed person who, for a valuable consideration, serves as an agent to others to facilitate the sale or lease of real property.
BROKERAGE– That aspect of the real estate business that is concerned with bringing together the parties and completing a real estate transaction. Brokerage involves exchanges, rentals, trade-ins, and management of the property, as well as sales.
CODE OF ETHICS– A written system of standards of ethical conduct. The Code of Ethics of the National Association of Realtors, first written in 1913, establishes the high standards of conduct for members of the Realtor community.
COMMINGLING– To mingle or mix; for example, to deposit client funds in the broker’s personal or general account. A licensee found guilty of commingling can have the license suspended or revoked by the Real Estate Commission.
COOPERATING BROKER– A broker who joins with another broker in the sale of real property; sometimes called the selling broker.
COURTESY TO BROKERS– The practice of sharing commissions with cooperating brokers.
DEFERRED COMMISSIONS– Commissions that are earned but not yet fully paid.
DUAL AGENCY– Representing both principals (buyer and seller) to a transaction.
EXCLUSIVE AGENCY– A written listing agreement giving one agent the right to sell the property for a specified time, but reserving to the owner the right to sell the property himself without payment of any commission.
EXCLUSIVE LISTING– A written listing of real property in which the seller agrees to appoint only one broker to sell the property for a specified period of time. The two types of exclusive listings are the exclusive agency and the exclusive right to sell.
EXTENDER CLAUSE– A “carry over” clause (referred to as a safety clause) contained in a listing provides that a broker is still entitled to a commission for a set of period of time after the listing has expired if the property is sold to a former prospect of the broker.
FARM AREA– A selected geographical area or one specific building to which a real estate salesperson devotes special attention and study.
FIDUCIARY– A relationship which implies a position of trust or confidence wherein one is usually entrusted to hold or manage property or money for another. Among the obligations, a fiduciary owes to the principal are duties of loyalty; obedience; full disclosure; the duty to use skill, care, and diligence; and the duty to account for all monies.
FINDER’S FEE– A fee paid to someone for producing a buyer to purchase or a seller to list property; also called a referral fee.
GENERAL AGENT– One who is authorized to perform any and all acts associated with the continued operation of a particular job or a certain business.
INDEPENDENT CONTRACTOR– One who is retained to perform a certain act, but who is subject to the control and direction of another only as to the end result and not as how he performs the act. The critical feature, and what distinguishes an independent contractor from an employee or agent, is the right to control.
LICENSEE– A person who has a valid license. A real estate licensee can be a salesperson or a broker, active or inactive, an individual, a corporation, or a partnership.
LISTING– A written employment agreement between a property owner and a broker authorizing the broker to find a buyer or a tenant for certain real property.
OFFICE EXCLUSIVE– A listing in which the seller refuses to submit the listing to Multiple Listing Service, even after being informed of the advantages of MLS, and signs a certification to that effect.
OPEN HOUSE– The common real estate practice of showing a listed home to the public during established hours, frequently on Sunday afternoons.
OPEN LISTING– A listing given to any number of brokers. The first broker who secures a buyer ready, willing and able to purchase at the terms of the listing is the one who earns the commission.
OVERRIDE– A commission paid to managerial personnel (e.g., the principal broker) on sales made by their subordinates, usually calculated as a percentage of the gross sales commissions earned by the salesperson.
POCKET LISTING– A listing which is retained by the listing broker or salesperson, who does not make it available to other brokers in the office or to other Multiple Listing Service members.
POWER OF ATTORNEY- A written instrument authorizing a person (the attorney-in-fact) to act as the agent on behalf of another to the extent indicated in the instrument.
PRINCIPAL BROKER- The licensed broker directly in charge of and responsible for the real estate operations conducted by a brokerage company.
PROCURING CAUSE- That effort which brings about the desired result, as in producing the buyer for the listed property.
REALTOR- A registered word which may only be used by an active real estate broker who is a member of the state and local real estate board affiliated with the National Association of Realtors. The use of the name REALTOR and the distinctive seal in advertising is strictly governed by the rules and regulations of the National Assn. of REALTORS®.