Mrec Agency - Commercial

MREC AGENCY – COMMERCIAL I. INTRODUCTION A. Common Law Agency - An agency relationship is defined by the Restatement (Second) of Agency as follows: 1. Agency is the fiduciary relationship which results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and consent by the other to so act. 2. The one for whom action is taken is the principal (client). 3. The one who is to act on behalf of the principal or client is the agent. Client can be seller, buyer or both. An agency relationship is, therefore, a "consensual" relationship. The principal authorizes the agent to act on his behalf and the agent agrees to so act. The scope of the agent's authority is determined by the nature of the authority granted to the agent by the principals. B. How Agency Relationship is Created 1. Express Agency An agency relationship normally is created by the express agreement between the principal and the agent: This expressed agency can be created by a writing or orally. a) Oral expression b) Written expression (e.g Exclusive Agency Agreement). 1) A writing is not required by common law to create or establish an agency relationship. 2) A writing is required by license law in most states as to residential property but an oral agency agreement is, nevertheless, enforceable to establish an agency relationship. 2. Intentional implied agency. An agency relationship created by the words and conduct of the parties; Nevertheless, the parties intended to create the agency relationship. 3. Accidental or unintentional creation of agency. a) By the conduct of the parties and by the words of the parties, an agency relationship may be deemed to exist. b) The test as to whether an agency relationship exists is, did the parties have reasonable basis to believe and did they, in fact, believe that an agency relationship existed? 4. Types of Agency – general and special C. a) General agency is the express or implied authority to represent the principal in broad, general matters. Examples include a guardian, personal representative or parent. b) A special agency is an express or implied agency for a specified purpose only. A real estate licensee who undertakes to represent an owner of real property or a prospective purchaser or lessee of real property is a special agent who has been employed for a particular purpose. Compensation. 1. A gratuitous agent is an agent who undertakes to represent a principal for no compensation. Nevertheless, an agency relationship will exist. 2. Payment of compensation alone is not controlling as to whether an agency relationship exists a) Compensation is a factor to be considered, however, the mere payment of compensation is not, by itself, conclusive evidence of an agency II. AGENT’S DUTIES TO PRINCIPAL A. An agent assumes a fiduciary relationship to the client. The duties owed to a principal by an agent are deemed to be among the highest forms of duty owed by one person to another. The duties owed to the client will depend upon whom the agent represents, either buyer or seller In either event, the duties owed are the same. In the case of disclosed dual agency, the duties will be owed to both buyer and seller and such duty will be in strict accordance with the written authority of both clients. B. Types of duties owed by an agent to a principal. 1. Common law duties. a) Loyalty. b) Obedience. c) Disclosure d) Confidentiality e) Promote and protect the client's interest (reasonable care and diligence). f) Accounting. g) Failure by an agent to discharge these duties constitute a breach of fiduciary duties to the client. C. Loyalty. A duty of loyalty is one of the most fundamental fiduciary duties owed by an agent to his principal. This duty obligates a real estate broker to act at all times solely in the best interest of his principal to the exclusion of all other interests, including the broker's own self-interest. A corollary of this duty of loyalty is a duty to avoid steadfastly any conflicts of interest that might compromise or dilute the broker's undivided loyalty to the principal's interests. Thus, a real estate broker's duty to loyalty prohibits the broker from accepting employment from any person whose interests compete with, or are adverse to, the principal's interests, A classic example of breach of this duty of loyalty by a real estate broker is a broker who purchases property listed with the broker's firm and then immediately resells it at a profit. Such conduct ordinarily is perfectly appropriate and lawful by persons acting "at arms length." But a fiduciary will be, deemed to have "stolen" a profit opportunity rightfully belonging to the principal and thus to have breached a duty of loyalty. D. Obedience. An agent is obligated to obey promptly and efficiently all reasonable and lawful instructions of his principal. However, this duty plainly does not include an obligation to obey any unlawful instructions; for example, an instruction not to market the property to minorities or to misrepresent the condition of the property. Compliance with instructions that agent knows to be unlawful could constitute a breach of an agent's duty of loyalty, by facilitating the unlawful conduct. E. Disclosure. Disclosure - An agent is obligated to disclose to the principal all relevant and material information that the agent knows and that pertains to the scope of the agency. This duty specifically obligates a real estate broker representing a seller to reveal to the seller: 1. All offers to purchase the seller's property. 2. The identity of all potential purchasers. 3. Any facts affecting the value of the property. 4. Information concerning the ability or willingness of the buyer to complete the sale or to offer a higher price. 5. The broker’s relationship to, or interest in, a prospective buyer. 6. A buyer’s intention to subdivide or resell the property for a profit. 7. Any other information that might affect the seller’s ability to obtain the highest price and best terms in the sale of his property. Likewise a real estate broker representing a buyer is obligated to reveal to the buyer: 1. The willingness of the seller to accept a lower price. 2. Any fact relating to the urgency of the seller’s need to dispose of the property. 3. The broker’s relationship to, or interest in, the seller or the property for sale. 4. Any facts affecting the value of the property. 5. The length of time the property has been on the market and other offers or counter offers that have been made relating to the property. 6. Any other information that would affect the buyer’s ability to obtain the property at the lowest price and on the most favorable terms. CAVEAT: An agent’s duty of disclosure to the principal must not be confused with a real estate broker’s duty to disclose to non-principals any known material facts concerning the property. This duty to disclose known material facts is based upon a real estate broker’s duty to treat all persons honestly and fairly. This duty of honesty and fairness does not depend upon the existence of an agency relationship and is imposed under the Maryland real estate license law. F. Confidentiality. An agent is obligated to safeguard the principal's confidences and secrets. A real estate broker, therefore, must keep confidential any information that might weaken the principal’s bargaining position if it were revealed. This duty of confidentiality precludes a broker representing a seller from disclosing to a buyer that the seller will sell their property below the listed price. CAVEAT: This duty of confidentiality plainly does not include any obligation on a broker representing a seller to withhold from a buyer known material facts concerning the condition of the seller's property. To do so would constitute misrepresentation and would impose liability on both the broker and the seller. G. Reasonable Care And Diligence. An agent is obligated to use reasonable care and diligence in pursuing the principal's affairs. The standard of care expected of a real estate broker representing a seller or buyer is that of a competent real estate professional. By reason of their license, a real estate broker is deemed to have skill and expertise in real estate matters superior to that of the average person. As an agent representing others in their real estate dealings, a broker or salesperson is under a duty to use their superior skill and knowledge while pursuing the principal's affairs. This duty includes an obligation to affirmatively discover facts relating to