1. Who is considered the Principal in a real estate relationship? Define ‘agency’ as according to the California Civil Code. Explain what is a Fiduciary Relationship, how is it created and how does it obligate the agent?
2. Name and ‘Define’ the 3 ways a real estate agency is created, be specific. Which one of the three is the most common?
3. Explain the difference between an independent contractor and an employee of a real estate office.
4. Can a real estate agent represent both the buyer and seller on the same transaction at the same time? Why or why not? Name three occasions when the Disclosure Regarding Real Estate Agency Relationships Form must be completed.
5. What is a “Trust Account’ ? What is ‘commingling’ ? What three (3) choices does a real estate agent have to make with a buyer’s deposit within 3 business days (if the buyer did not ask to have the check held uncashed)?
Real Estate Agency Relationships
1. Principal and Agency
In a real estate relationship, the principal is the person who hires the agent to represent them. The agent is the person who acts on behalf of the principal. According to the California Civil Code, an agency is a relationship between two persons, by which one person (the agent) is authorized to act for another (the principal).
A fiduciary relationship is a special type of agency relationship where one party places trust and confidence in another to act in their best interests. In a real estate agency relationship, the agent has a fiduciary duty to the principal. This means that the agent must act honestly, fairly, and in the best interests of the principal.
Real Estate Agency Relationships
1. Principal and Agency
In a real estate relationship, the principal is the person who hires the agent to represent them. The agent is the person who acts on behalf of the principal. According to the California Civil Code, an agency is a relationship between two persons, by which one person (the agent) is authorized to act for another (the principal).
A fiduciary relationship is a special type of agency relationship where one party places trust and confidence in another to act in their best interests. In a real estate agency relationship, the agent has a fiduciary duty to the principal. This means that the agent must act honestly, fairly, and in the best interests of the principal.
2. Creation of Agency
A real estate agency can be created in three ways:
- Express Agency: This occurs when the principal and agent explicitly agree to the agency relationship, either orally or in writing.
- Implied Agency: This occurs when the principal’s actions or words imply that they have authorized the agent to act on their behalf.
- Apparent Agency: This occurs when a third party reasonably believes that the agent has authority to act on the principal’s behalf, even if the principal has not given express or implied authority.
The most common way to create a real estate agency relationship is through an express agency. This is typically done by signing a listing agreement or buyer’s agency agreement.
3. Independent Contractor vs. Employee
An independent contractor is a person who works for another person or entity but is not an employee. They have more control over their work and are not subject to the same employer-employee relationship as employees.
An employee is a person who works for another person or entity under a contract of employment. Employees are generally subject to the employer’s control and supervision.
4. Dual Agency
A real estate agent cannot represent both the buyer and seller in the same transaction at the same time unless both parties agree in writing. This is known as dual agency.
The Disclosure Regarding Real Estate Agency Relationships Form must be completed in the following three situations:
- When a buyer or seller is represented by an agent.
- When a listing agent represents the seller and also acts as a buyer’s agent for a buyer who is interested in the listed property.
- When an agent represents both the buyer and seller in the same transaction with their written consent.
5. Trust Account and Commingling
A trust account is a separate bank account used by real estate agents to hold funds belonging to their clients. Commingling is the practice of mixing client funds with the agent’s personal funds. This is illegal and unethical.
Real estate agents have three choices for handling a buyer’s deposit within three business days:
- Hold the check uncashed: If the buyer requests that the check be held uncashed, the agent must comply.
- Deposit the check into the trust account: The agent can deposit the check into the trust account and hold it until the transaction closes.
- Disburse the funds: If the agent is authorized to disburse the funds, they can do so in accordance with the terms of the purchase agreement.
