General Principals of Agency ; Real Estate; Agency; New Jersey; Real Estate Exam; Realty Preparation

2. Section 7
General Principals of Agency
(Salesperson – 10 Questions)

3. Agency
• The role of a broker as the agent of his or her principal is a fiduciary
relationship that falls within the requirements of the law of agency.
• A fiduciary relationship is one of trust and confidence in which an
agent is responsible for the money and/or property of others.
• It requires putting the principal's interest above all others, including
the broker's own interest.

4. Agency
• The agent is also known as a fiduciary.
• Not all relationships in real estate involve agency!

5. Client / Customer (Very Important)
• A client is someone to whom a broker acts as an agent.
• So, a seller who hires a broker as a seller's agent to list her home for
sale is a client.
• The buyer who is interested in a showing is the broker's customer.
• The broker does not have an agency relationship with the customer.
However, the broker has to deal honestly and fairly with a customer.

6. Types of Agency
• Universal Agent (not a real estate agency)
• General Agent
• Special Agent
• Attorney-in-fact (created by a power of attorney)

7. Universal Agent
• A universal agent has authority to represent the principal in all
matters that can be delegated.
• A universal agent may be authorized to enter into any contract on
behalf of the principal without prior permission.

8. Universal Agent
• For example, a universal agent would normally be appointed by a
court to attend to the needs of someone who was mentally
incompetent.
• Universal agency is not a real estate relationship.

9. General Agent
• A general agent represents the principal in a broad range of matters.
• The general agent may bind the principal to any contracts within the
scope of his or her authority.

10. General Agent
• An example of a general agent would be a property manager
responsible for running a large building. The agent finds tenants,
collects rents, and hires and supervises maintenance personnel,
among other duties.
• In this example, the general agency would be created by a property
management agreement.

11. Special Agency
• A special agent is authorized to represent the principal in one specific
capacity only.
• A real estate broker is traditionally a special agent hired by a buyer or
seller to locate a willing seller of a suitable property or a willing buyer.

12. Special Agency
• As a special agent, the broker is not authorized to buy or sell the property
or to bind the principal to any contract.
• The broker is not authorized for example to make an offer or accept an
offer on behalf of the client.

13. Power of Attorney
• Another type of agency is created by a power of attorney.
• Called an attorney-in-fact, the individual is authorized to act for someone
else in a legally binding capacity.
• A power of attorney is created with a legal written authorization that
stipulates the specific areas of authority in which the agent may act.

14. Power of Attorney
• An attorney-in-fact can sign a deed conveying property or execute a
mortgage and note to secure financing for a borrower.
• In these cases, the power of attorney document needs to be signed by
the principal in front of a notary public and recorded in the public record.

15. Fiduciary Responsibilities

16. Duties Associated with an Agency (COALD)
• Care
• Obedience
• Accounting
• Loyalty (confidentiality)
• Disclosure

17. Duty of Care
• Must exercise a reasonable degree of care and diligence on behalf of the
principal.
• Expected to have expertise in real estate matters greater than that
possessed by the average person.
• They may be liable to the principal for any loss resulting from negligence or
carelessness.

18. Examples Duty of Care
• Assist a seller in arriving at a reasonable listing price
• Discover and investigate material facts about the property and the buyer
• Negotiate the highest possible sale price

19. Examples Duty of Care
• Meet deadlines and closing dates
• Advise the seller on ways to affect the sale.
• Failure to do any of the above could be a breach of the duty of care.

20. Standards of Care
• Brokers are held to higher expectations than salespersons.
• Brokers are unwise to represent themselves as experts if they are not.
• The duty of observing an appropriate standard of care is the responsibility
of the agent whether experienced or not.

21. Duty of Obedience
• The agent is obligated to obey the principal's lawful instructions.
• The agent must not obey unlawful or unethical instructions

22. Examples – Duty of Obedience
Must Do
• 24-hr showing notice
• No showings before 9:00am.
• Hold harmless notice prior to
showing
Must Not Do
• Violating fair housing laws
• Not disclosing defects
• Hiding buyer's finance issue.
• Try bidding low.

23. Duty of Accounting
• Agent is obligated to safeguard and account for all client money or
property.
• Broker must deposit all client funds into the broker trust account.
• Brokers to give duplicate originals of all documents to all parties upon
execution and to keep copies of documents for six years.

24. Duty of Accounting
• Broker must not to commingle business or personal funds with client
funds or to keep interest they earned on client funds in the escrow
account.
• An agent may not make any secret profit.

25. Duty of Loyalty (Confidentiality)
• Agent must always place a principal's interests above those of others
including the agent's own interests.
• Agent cannot disclose any confidential facts that might harm the
principal's bargaining position.
• Duty of confidentiality continues after the transaction is consummated.

26. Duty of Loyalty (Confidentiality)
• A seller's agent may not disclose that the principal will accept a price
below the list price.
• A buyer's broker cannot reveal the buyer’s willingness to pay more than
offered for a property.
• Brokers or salespersons must not buy property listed with them for
themselves without first notifying the principal that it is for themselves or
a family member.

27. Duty of Loyalty (Confidentiality)
• Agents may not sell property in which they have a personal interest
without informing the purchaser of that interest and including a
provision in the contract.
• Agent may not profit at the expense of the principals except through the
agreed-on commission.
• Profiting from a client's misfortune is, likewise, not permitted.
Discouraging co-broker’s to allow time to find the buyer, for example.

28. Duty of Disclosure (Notice)
• All facts or information that could impact the principal's business or
decisions.
• Pertinent information whether or not the client asks.
• Information that might affect the object of the agency

29. Duty of Disclosure (Notice)
• True value of the property
• A buyer's agent must communicate to the buyer any information about the
seller's willingness to accept a lower price, about other offers, or about the
value of the property.
• No confidentiality would apply to the seller's disclosures if made to a
buyer's broker.

30. Duty of Disclosure (Notice)
• The law considers that any notice given the agent has been given to the
principal.
• The agent therefore has a duty to pass on any material information; all
written offers must be presented immediately.
• The broker who is a seller's agent must volunteer any facts that might be
of value to the seller.
• Details of the buyer's financial condition should be disclosed

31. Duty of Disclosure (Notice)
• Buyer has indicated a willingness to pay a higher price.
• Broker has an obligation to explain to the seller matters that might
otherwise escape notice or be misunderstood.
• Buyer's broker is obligated to pass on to the buyer any information that
might help the buyer's negotiating position.

32. General Duty of Fair Dealing
• Real estate licensees are required to deal fairly and honestly with all
parties.
• Responsibilities of agent to customers and third parties, including
disclosure, honesty, integrity, accounting for money

33. Agency and the Consumer

34. Creation of Agency With Sellers and Buyers
• The special agency relationship between a broker and a seller or a broker
and a buyer is generally created by an exclusive listing agreement or an
exclusive buyer agency agreement.
• Neither agreement is required to be in writing by New Jersey and agency
can easily be created without a written agreement.
• Broker has must reject agency contracts that violate the ethics or the law.

35. Disclosure of Agency
• N.J.A.C. 11:5-6.9 contains NJREC rules regarding the disclosure of
agency.
• Licensees required to present a Consumer Information Statement to all
sellers, buyers, landlords, and tenants on the sale or rental of all one- to
four-family residential properties or vacant one-family lots.
• Short-term rentals held for not more than 125 consecutive days are
excluded from the formal written disclosure requirement, although
licensees still must disclose their business relationship in the transaction.

36. Disclosure of Agency
• A Consumer Information Statement (CIS) is not required for
commercial transactions.
• The Consumer Information Statement describes the types of business
relationships a real estate agent can enter into with a customer or
client and the duties associated with each relationship.

37. CIS Business Relationships
• A seller’s agent
• A buyer’s agent
• A disclosed dual agent
• A transaction broker
• A seller’s agent on properties on which the firm is acting as a seller’s
agent and transaction broker on other properties.

38. Seller’s Agent
• Works only for the seller.
• Has fiduciary duties to the seller.
• Has duty of honesty and fair dealing when working with buyers.
• Must disclose defects of a material nature affecting the physical
condition of the property which a reasonable inspection by the
licensee would disclose.

39. Buyer’s Agent
• Works only for the buyer.
• Has fiduciary duties to the buyer.
• Has duty of honesty and fair dealing to the seller.
• Must not misrepresent any facts material to the transaction such as
the buyers financial qualifications and must disclose defects of a
material nature affecting the physical condition of the property which
a reasonable inspection by the licensee would disclose.

40. Seller’s Agent/Buyer’s Agent
For Sale
Listing
Broker
Buyer
Broker
Listing
Agent
Buyer
Exclusive Listing
Agent of Seller
Buyer is Customer
Agent of Broker
Subagent of Seller
Excl Buyer Agent
Agent of Buyer
Seller is Customer

41. Dual Agency
• A disclosed dual agent works for both the buyer and the seller in the
same transaction.
• To work as a dual agent, a firm must first obtain the informed written
consent to dual agency from both the buyer and the seller.
• Most likely to occur when a licensee with a real estate firm working as a
buyers agent shows the buyer properties owned by sellers for whom that
firm is also working as a seller’s agent or sub-agent.

42. Dual Agency
• Because the licensee has a fiduciary duty to both buyer and the seller,
the licensee must have express permission of a party prior to
disclosing confidential information to the other party.
• Such information includes the highest price a buyer can afford to pay
and the lowest price a seller will accept and the parties’ motivation to
buy or sell.

43. Dual Agency
• A brokerage firm acting as a disclosed dual agent will not be able to put
one party’s interest ahead of those of the other party
• A brokerage firm likewise, cannot advise or counsel either party on how to
gain an advantage at the expense of the other party on the basis of
confidential information obtained from or about the other party.
• [See consent to dual agency form]

44. NJ Dual Agency Disclosure Requirements
• Explains fully the legal duties that will and will not be available from
him or her.
• Disclose any other business relationships that might affect the
proposed transaction.
• Obtains the buyer’s and seller’s written informed consent to the
brokers acting as a dual agent

45. NJ Dual Agency Disclosure Requirements
• Advises that each party may want to consult a lawyer.
• The broker is not allowed to accept compensation from both the
buyer and the seller in the same transaction. The dual agent may be
paid by either the buyer or the seller, but never by both.

46. Disclosed Dual Agent
For Sale
Listing
Broker
Buyer
Listing
Agent
Buyer
Agent
Exclusive Listing
Seller is a Client
Buyer is a Client
Agent of Broker
Subagent of Seller
Subagent of Buyer
Agent of Broker
Subagent of Buyer
Subagent of Seller

47. Transaction Broker
• NJ License Law does not require licensees to work in the capacity of an
agent when providing brokerage services.
• A transaction broker works with a buyer or a seller or both in the sales
transaction without representing anyone.
• A transaction broker does not promote the interests of one party over
those of the other party to the transaction.

48. Transaction Broker
• Licensees with such a firm would be required to treat all parties honestly
and to act in a competent manner, but they would not be required to keep
confidential any information.
• A transaction broker can locate qualified buyers for a seller or a suitable
property for a buyer.
• They can then work with both parties in an effort to arrive at an agreement
on the sale or rental of real estate and perform tasks to facilitate the
closing of a transaction.

49. Transaction Broker
• A transaction broker primarily serves as a manager of the transaction.
• Communicates information between the parties to assist them in arriving
at a mutually acceptable agreement and in closing the transaction
• Cannot advise or counsel either party on how to gain an advantage at the
expense of the other party.

50. Transaction Broker
• Owners considering working with transaction brokers are advised to sign a
written agreement with that firm which clearly states what services that
firm will perform and how it will be paid.
• In addition, any transaction brokerage agreement with a seller or a
landlord should specifically state whether a notice on the property to be
rented or sold will or will not be circulated in any Multiple Listing System of
which that firm is a member.

51. Transaction Broker
For Sale
Broker Buyer
Buyer
Transaction Mgr.
Seller is Customer
Buyer is Customer
No Agency Exists
No advice given to either party
Any information that comes into
the possession of the broker is
passed to the other side.

52. Furnishing the CIS Disclosure
• Real estate agents are required to furnish a CIS before any discussion of a
seller’s/landlord’s or buyer’s/tenant’s motivation or financial situation is
initiated.
• If the first discussion takes place by telephone or in a social setting, the
seller or buyer must still be verbally informed about the possible agency
relationships and alerted to their implications.

53. Furnishing the CIS Disclosure
• The statement should then be furnished at the next meeting, or included
with the first email, fax, mail, or delivered material.
• If no discussion of motivation or financial situation has taken place, the
agent must furnish a CIS before any property (listed or unlisted) is shown.

54. Furnishing the CIS Disclosure
• The regulations do not require that the CIS be signed by the parties as to
their acknowledgment of receipt of the CIS or by the licensee as to the
declaration of business relationship.
• However, in the event that a broker’s office policy requires that a CIS be
signed, the regulations do provide language that a licensee may use as an
option for obtaining the required signatures.

55. Furnishing the CIS Disclosure
• If the CIS is signed, a copy of the signed CIS is to be retained by the broker
when a sale or rental is consummated for six years.
• Sellers and buyers must acknowledge receipt of the CIS on all offers,
contracts, and leases.

56. Other Written Disclosure of Agency
• Every listing, offer, contract, and lease prepared by a licensee must set
forth the broker’s relationship with the parties involved.
• If a signed CIS is not attached, offers, contracts, or leases must also
contain the client or customer’s acknowledgment that the CIS was
received prior to the first showing of the property.
• In addition, when more than one firm is involved, the licensee preparing
the document must include a statement indicating how the other firm has
described its agency status in that transaction.

57. Other Written Disclosure of Agency
• Listing agreements prepared by a seller’s agent must state whether
subagency is being offered to cooperating firms and whether the seller
has authorized sharing the commission with subagents, buyer’s brokers,
or transaction brokers.
• If so, the agreement must state the amount of the share.
• When other licensees inquire about a listing, it is the responsibility of the
listing agent to determine whether the other agent is functioning as a
buyer’s broker, a subagent of the seller, a transaction broker, or a disclosed
dual agent, in order to judge what confidential information may be shared.

58. Termination of Agency
• Death or incompetency of either
party
• Destruction of the property
• Expiration of the term of the
agency
• Mutual agreement
• Renunciation by the agent
• Revocation by the principal
• Bankruptcy of either party
• Fulfillment of the objective

59. Termination of Agency
• A seller or buyer, acting in good faith, has a right to fire a broker (for
cause) or to rescind the brokerage agreement at any time.
• When a broker is discharged prior to the agreed upon date, the broker may
be entitled to reimbursement for out-of-pocket expenses, such as
advertising and multiple listing service fees.
• The contractual provisions of the contract may be enforceable until
expiration.

60. Inadvertent Agency
• Licensee must be careful not to give the buyer the impression that he or
she is the agent’s client if no buyer agency agreement exists.
• Even if it is not the intention of the agent to create a formal agency, the
courts may infer that agency exists if the licensee acts “as an agent.”
• Salespeople working with customers should be careful at all times not to
use such terms as “my buyer,” or refer to a customer as a “client.”

61. Inadvertent Agency
• These could have the effect of creating agency liability for the licensee to
the buyer
• Inadvertent agency could lead to inadvertent and undisclosed dual agency.