The following information is gathered from the Gold Coast School of Real Estate REcampus Site where I take my continuing education online.
AGENCY LAW
While the law of agency is clear and straightforward, its
application to the real estate brokerage business is quite complex.
This unit updates licensees concerning broker's relationships with
parties to transactions and the disclosure requirements of Florida law.
The laws of agency govern the dealings between single-agent brokers
and their principals. They are the product of common law, case law, and
statute. To understand how we got where we are today, we must
understand where we have been.
For years, brokers were usually single agents representing sellers.
Buyers were unrepresented, but were not always aware of the fact. A
National Association of REALTORS® survey taken during the 1970s showed
that 55 percent of buyers mistakenly believed that the seller's brokers
represented them. A later Federal Trade Commission survey put that
figure at 72 percent. This led to legislation intended to provide
better consumer disclosure.
Chapter 475 did not specifically address the issue of agency
disclosure for many years, because it was addressed in another statute.
Florida's "Little FTC Act" (Ch 501, F.S.) required that licensees
disclose to buyers before signing contracts that they were agents of
sellers, if that were the case. Often, the quality of the disclosures
was less than perfect, and there was little documentation available to
protect a broker from later claims of failure to disclose.
In 1994, Chapter 475 was amended with major changes to brokerage
relationships. The law required that written disclosures be given to
consumers in all real estate transactions, including nonresidential
sales and leasing. The change allowed brokers to act as single agents,
dual agents, or transaction brokers. In the following years, certain
problems in the law were identified, and in 1997, the Brokerage
Relationship Disclosure Act became part of Chapter 475.
In 2003, the law made it a legal presumption that licensees are
operating as transaction brokers unless otherwise agreed in writing.
BROKERAGE RELATIONSHIP DISCLOSURE ACT
The Brokerage Relationship Disclosure Act, effective October 1,
1997, was important to both licensees and consumers. The act
specifically prohibited dual agency, intended or unintended, and
removed the disclosure requirements from all transactions except for
residential property. It simplified the disclosure notices and required
that licensees in a residential transaction give disclosure notices,
including notices of nonrepresentation at "first contact" with
consumers. In 1998, the law was changed to allow nonresidential brokers
to appoint designated sales associates. In 1999, the law was revised to
delete the notice of nonrepresentation form. It prescribed the no
brokerage relationship notice. Licensees must give the notices to
parties they do not represent before showing homes or before entering
into a listing agreement or buyer broker agreement.
The law is important to licensees in two principal areas:
1. It describes the type of brokerage relationship a licensee may
have with a customer. This section of the law applies to all licensees.
2. It requires disclosure of the brokerage relationship a licensee has
with a customer. This section of the law applies only to licensees
dealing in residential property sales.
AUTHORIZED BROKERAGE RELATIONSHIPS
A real estate licensee may have brokerage relationships with
potential buyers and sellers, either as single agents or as transaction
brokers. It is illegal for a licensee to be a disclosed or an
undisclosed dual agent. A licensee may also work with a customer with
no brokerage relationship, acting as a nonrepresentative.
New!
It is legally presumed that all licensees are
operating as transaction brokers unless single-agent or no brokerage
relationships are established, in writing, with customers.
[475.278(1)(b), F.S.]
The broker determines the type of relationship he or she will have
with the customer. If a single agency relationship is established with
a residential seller, all licensees in that brokerage firm have
single-agent duties to the seller. It is not legal for another sales
associate in the firm to represent a buyer or be a transaction broker.
A sales associate may not decide the type of relationship without the
broker's consent.
After a brokerage relationship has been established, a licensee may
change from one brokerage relationship to another. The licensee must
make the appropriate disclosure of duties to the principal, and the
principal must give written consent before the change. A customer is
not required to enter a brokerage relationship with any real estate
licensee. [475.278(1)]
All licensees have the legal duties of
* fair and honest dealing with customers;
* disclosure of
known facts that materially affect the value of residential property
and that are not readily observable to the buyer; and
* accounting for all funds.
Additional duties are imposed on single agents and transaction brokers.
DISCLOSURE REQUIREMENTS
Brokers must disclose their brokerage relationships to customers
only in residential real estate sales. Residential sales are defined as
the sales of
* improved residential property of four units or less;
* unimproved residential property intended for use as four units or less; and
* agricultural property of ten acres or less.
DISCLOSURE LIMITATIONS
The real estate disclosure requirements of this section do not apply
* when a licensee knows that the potential seller or buyer is represented by a single agent or a transaction broker;
* when an owner is selling new residential units built by the owner
and the circumstances or setting should reasonably inform the potential
buyer that the owner's employee or single agent is acting on behalf of
the owner, whether because of the location of the sales office or
because of office signage or placards or identification badges worn by
the owner's employee or single agent;
* to nonresidential transactions;
* to the rental or leasing of real property, unless an option to
purchase all or a portion of the property improved with four or fewer
residential units is given;
* to a bona fide "open house" or
model home showing that does not involve eliciting confidential
information, the execution of a contractual offer or an agreement for
representation, or negotiations concerning price, terms, or conditions
of a potential sale;
* to unanticipated casual conversations
between a licensee and a seller or buyer that do not involve eliciting
confidential information, execution of contractual offers or agreements
for representation, or negotiations concerning price, terms, or
conditions of potential sales;
* when responding to general
factual questions from a potential buyer or seller concerning
properties that have been advertised for sale;
* to situations
in which a licensee's communications with a potential buyer or seller
are limited to providing general factual information, oral or written,
about the qualifications, background, and services of the licensee or
the licensee's brokerage firm; and
* to auctions, appraisals,
and dispositions of any interest in business enterprises or business
opportunities, except for property with four or fewer residential units.
If a licensee will be a single agent or transaction broker, the
licensee must provide disclosure before or at the time of entering into
a listing agreement or an agreement for representation or before the
showing of property, whichever occurs first. If a licensee will not be
representing a customer in any capacity, the licensee must give the
customer a No Brokerage Relationship Notice before showing a property.
Four different disclosure notices may be given to customers selling or buying residential property:
1. No Brokerage Relationship Notice
2. Single Agent Notice
3. Transaction Broker Notice
4. Consent to Transition to Transaction Broker Notice
NO BROKERAGE RELATIONSHIP
Licensees working with a customer without a brokerage relationship owe the customer the following duties:
* Dealing honestly and fairly
* Disclosing all known
facts that materially affect the value of the residential real property
that are not readily observable to the buyer
* Accounting for all funds entrusted to the licensee
Occasionally, a single agent for one party in a transaction decides
to work with the other party as a nonrepresentative. In fact, before
the practice of buyer brokerage became popular, most brokers worked for
sellers, and buyers were not represented in the transaction. If a
broker does not have a brokerage relationship with a customer, and is a
single agent for the other party, the customer is at a disadvantage. It
is the duty of the single agent to work diligently for the principal
and obtain the best price and terms.
No Brokerage Relationship Notice
A licensee must give a No Brokerage Relationship Notice to the party
the licensee does not represent. The disclosure must be given to all
prospective buyers and sellers before showing residential properties.
The notice need not be signed. The notice is included in the
Forms-To-Go section.
SINGLE AGENT RELATIONSHIP
A single agent represents, as a fiduciary, either the buyer or
seller but not both in the same transaction. Being a single-agent
broker does not mean, however, that there must be two brokers in every
transaction. For example, a single-agent broker who represents the
seller may work with a buyer as a nonrepresentative.
Fiduciary Relationship
A fiduciary relationship is a position of trust and confidence in
which the fiduciary is entrusted to manage the property of the
principal. The principal relies on the real estate single agent to give
skilled and knowledgeable advice and to help negotiate the best
transaction in dealings with the customer. Because only a single agency
creates a fiduciary relationship, only single agents may call their
customers principals. Once a single-agent relationship is created, the
law requires that the agent place the interests of the principal above
the interests of everyone else, including those of the agent. The
principal is responsible for the acts of his or her single agent.
Creation of Single-Agent Relationships
A single-agent relationship results from mutual consent between the
principal and the agent. The broker requires only the principal's
specific authorization to represent him or her. A single agency is not
created simply because a licensee performs a service for a customer.
Payment of a commission is not a factor in creating a single-agent
relationship. A single agent does not need a written contract or
compensation for an agency relationship to exist.
Single-Agent Duties
A single agent owes nine specific duties to a buyer or seller:
1. Dealing honestly and fairly
2. Loyalty
3. Confidentiality
4. Obedience
5. Full disclosure
6. Accounting for all funds
7. Skill, care, and diligence in the transaction
8. Presenting all offers and counteroffers in a timely manner, unless
a party has previously directed the licensee otherwise in writing
9. Disclosing all known facts that materially affect the value of residential real property and are not readily observable
Single-Agent Notice
The duties of a single agent must be disclosed in writing to a buyer
or seller. It may be a separate and distinct disclosure document or
part of another document, such as a listing agreement or a buyer's
representation agreement. The disclosure must be made either before or
at the time of entering into a listing agreement or an agreement for
representation or before the showing of property, whichever occurs
first. The Single Agent Notice is included in the Forms-To-Go section.
The notice should be signed. If a principal refuses to sign a Single
Agent Notice, the licensee may still work as a single agent for that
person but should note on the form that the principal declined to sign.
TRANSACTION BROKER RELATIONSHIP
Under the law, licensees are presumed to be transaction brokers. A
transaction broker provides limited representation to a buyer, a
seller, or both in a real estate transaction, but does not represent
either in a fiduciary capacity. The licensee can "work for the
contract" without being an advocate for either party. The licensee must
treat the parties fairly and not work for one party to the detriment of
the other. The customer is not the broker's principal and is not
responsible for the acts of the licensee. The duties of the transaction
broker include the following:
1. Dealing honestly and fairly
2. Accounting for all funds
3. Using skill, care, and diligence in the transaction
4. Disclosing all known facts that materially affect the value of
residential real property and are not readily observable to the buyer
5. Presenting all offers and counteroffers in a timely manner,
unless a party has previously directed the licensees otherwise in
writing
6. Limited confidentiality, unless waived in writing by a party. The
transaction broker may not reveal to either party the following
information:
* That the seller might accept a price less than the asking or list price
* That the buyer might pay a price greater than the price submitted in a written offer
* The motivation of any party for selling or buying property
* That a seller or buyer will agree to financing terms other than those offered
* Any other information requested by a party to remain confidential
7. Any additional duties that are entered into by this or by a separate agreement
Transaction brokerage relationships can begin in one of two ways:
1. The broker chooses to be a transaction broker in all transactions.
2. A single-agent broker becomes a transaction broker to facilitate the transaction and to sell one of the firm's listings.
When the broker chooses to be a transaction broker in all transactions:
Some brokers recognize the increased liability because of the
complexities of the disclosure requirements and the need for their
sales associates to remember which "hats" they are wearing in specific
transactions. Customers and licensees can become confused if the
licensee is a single agent for a buyer until showing the firm's own
listings and then changes to a transaction broker.
For this reason, many brokers have established the policy that their
firm will act as transaction brokers in every situation with every
customer. (The only time the policy might change is the rare situation
when a customer wishes the broker to have "no brokerage relationship"
status.) All licensees in the firm then have the same role in every
transaction, reducing the chance of the licensee's inadvertently
violating their legal duty.
When a single agent becomes a transaction broker to facilitate the transaction:
The need for a single agent to become a transaction broker
frequently occurs when the buyer and seller are working with the same
brokerage firm.
Neither party will want to be unrepresented in the transaction, and
might request that the single agent take the middle ground between the
parties and become a transaction broker. This status makes it easier
for a broker to sell his or her own listing. The next section describes
the steps necessary to change from a single agent to a transaction
broker.
Transaction Broker Notice
The Transaction Broker Notice must be given to a customer before or
at the time of entering into a listing agreement, entering into an
agreement for representation, or the showing of a property. The notice
itemizes the legal duties of the licensee and informs the customer that
his or her representation is limited, allowing the licensee to
facilitate a transaction. The Transaction Broker Notice is in the
Forms-To-Go section.
New!
The Transaction Broker Notice requirement will be
eliminated in 2008 because of the legal presumption that all licensees
are transaction brokers unless otherwise agreed in writing. The reason
for the delay in eliminating the form is to give the public time to
become aware of the change.
The customer should sign the notice. If a customer refuses to sign a
Transaction Broker Notice, the licensee may still work as a transaction
broker for that customer but should note on the form that the customer
declined to sign.
TRANSITIONING FROM SINGLE AGENT
When a single agent for one party begins working with a party who is
likely to be on the other side of the transaction, it is likely that
the agent will change to a transaction broker to treat both parties
fairly. The single agent who becomes a transaction broker may not
disclose to another party any information gained while a single agent.
Example:
Broker James listed the Smiths' house as their single
agent. Sally, a licensee in Broker James's office, is working as the
single agent for a buyer, Mr. Farley. Mr. Farley becomes interested in
the Smiths' house. Because the broker cannot represent both parties
(dual agency), the broker obtains the informed written consent of both
parties for him to switch to transaction broker status.
Consent to Transition to Transaction Broker Notice
New!
The Consent to Transition to Transaction Broker
Notice allows a single agent to change his or her brokerage
relationship to that of a transaction broker. This notice has recently
been revised, and now includes wording from the Transaction Broker
Notice. It must be provided before or at the time of changing the
brokerage relationship from single agent to transaction broker. The new
Consent to Transition to Transaction Broker Notice is in the
Forms-To-Go section.
The principal must sign the notice before the single agent may
change to transaction broker status. This form may be included in a
listing or representation agreement and be authorized at the outset of
the single-agent relationship. The single-agent broker must disclose
the fact before changing to transaction broker.
In practice, many licensees who are single agents will have the
principal sign the Consent to Transition to Transaction Broker Notice
when the Single Agent Notice is given. The forms are usually included
as part of listing agreements and buyer representation agreements.
NON RESIDENTIAL DEALS ONLY: THE DESIGNATED SALES ASSOCIATE
Florida law allows a brokerage firm to designate one sales associate
in the firm to act as agent for the buyer (or lessee) and another sales
associate in the firm to act as the agent for the seller (or lessor).
This status may be used only in a nonresidential transaction. In this
status, each designated sales associate is an advocate for the party he
or she represents in the transaction, and each can actively help in the
negotiations. To meet the requirements of the law, buyers and sellers
must each have personal assets of at least $1 million, must sign
disclosures that each person's assets meet the requirement, and must
request this representation status. The licensees must give the parties
the Designated Sales Associate Notice and a Single Agent Notice. As a
matter of practice, many firms now use a combined form that includes
all the required information. A sample notice is shown in the
Forms-To-Go section.
Example:
Big Bagels, Inc., is searching for five store locations
in Sarasota. It engages Mary Perez of Sarasota Commerce Realty as a
single agent because of her knowledge and expertise in the Sarasota
fast-food field.
Mary finds a site listed by another sales associate in her firm.
Big Bagels, Inc., wants Mary to be its single agent, so the broker
appoints Mary as a single agent for Big Bagels, Inc., and Jack as
single agent for the seller. They are now designated sales associates.
Retaining Brokerage Relationship Disclosure Documents
Brokers must keep copies of disclosure notices for all residential
transactions that result in a written sales contracts for at least five
years. It does not matter whether the sale closes. DBPR investigators
review brokerage relationship disclosure notices during office
inspection visits.
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