Florida Real Estate Principles Practices Law 43 rd

Florida Real Estate Principles, Practices & Law 43 rd Edition Unit 4: Authorized Relationships, Duties, and Disclosure

Law of Agency • When people delegate authority to another to act on their behalf, an agency relationship is created • Three types of law – Common law (unwritten law) • Case law – Statutory law • F. S. 475 and F. S. 455 – Administrative law • FREC rules © 2017 Kaplan, Inc.

Agency Relationships in General Business Dealings • Fiduciary relationship – Opposite of at arm’s length relationship – Caveat emptor • Principal – Person who delegates authority to another • Agent – Person who is authorized to represent and act for principal • General agent • Special agent © 2017 Kaplan, Inc.

Residential Transaction Brokerage Relationships • Three brokerage relationship options – Nonrepresentation (No brokerage relationship) – Single agency – Transaction broker • Type of relationship determined by employing broker © 2017 Kaplan, Inc.

No Brokerage Relationship (Nonrepresentation) • Seller or buyer can choose to opt out of representation • Broker facilitates sale/purchase and may not negotiate on behalf of the customer © 2017 Kaplan, Inc.

Three Duties in No Brokerage Relationship 1. Account for all funds 2. Deal honestly and fairly 3. Disclose all known facts that materially affect the value of residential property that are not readily observable to the buyer • These duties are required in all types of brokerage relationships © 2017 Kaplan, Inc.

Single Agent Relationship • Single agent – A broker who represents, as a fiduciary, either the buyer or seller but not both in the same transaction • Principal – The party (client) with whom a licensee has entered into a single agent relationship – Fiduciary relationship of trust and confidence between broker as agent and the principal © 2017 Kaplan, Inc.

Dual Agency • Dual Agency – Brokerage represents as a single agent both the buyer and the seller – Florida law prohibits a brokerage firm from creating a fiduciary relationship with both the buyer and the seller – Relationship is established with the brokerage firm, so still dual agency if two different sales associates with same brokerage represent seller and buyer © 2017 Kaplan, Inc.

Subagents • Seller as principal Seller is principal → broker is agent for the seller → broker’s associates are subagents for the seller • Buyer as principal Buyer is principal → broker is agent for the buyer → broker’s associates are subagents for the buyer • Sales associates owe same fiduciary obligations to the principal as does broker © 2017 Kaplan, Inc.

Duties of a Single Agent • Account for all funds • Deal honestly and fairly • Disclose all known facts that materially affect the value of residential real property that are not readily observable • Use skill, care, and diligence • Present all offers and counteroffers • Confidentiality • Obedience • Loyalty • Full disclosure © 2017 Kaplan, Inc.

Duties Unique to Single Agency • Four of the nine duties owed to the principal apply only to single agent relationship 1. Confidentiality 2. Obedience 3. Loyalty 4. Disclosure (full) © 2017 Kaplan, Inc.

Transaction Broker Relationship Presumed • Under Florida law, it is presumed licensees are operating as transaction brokers unless a single agent or no brokerage relationship is established • A transaction broker disclosure is not required © 2017 Kaplan, Inc.

Transaction Broker Relationship • Provides limited representation to customer (buyer, seller or both) • Does not represent either buyer or seller as a fiduciary or as a single agent • Customer is not responsible for actions of transaction broker © 2017 Kaplan, Inc.

Duties of a Transaction Broker 1. Account for all funds 2. Deal honestly and fairly 3. Disclose all known facts that materially affect the value of real property not readily observable 4. Use skill, care, and diligence in the transaction 5. Timely present of all offers and counteroffers 6. Exercise limited confidentiality, unless waived in writing by a party 7. Perform additional duties mutually agreed to © 2017 Kaplan, Inc.

Unique Duties of Transaction Broker • First three duties apply to all brokerage relationships • Duties four and five apply also to single agency relationship • Two duties apply only to transaction broker 1. Exercise limited confidentiality, unless waived 2. Perform additional duties mutually agreed to © 2017 Kaplan, Inc.

Transaction Broker Relationship • Parties give up rights to undivided loyalty • Limited representation allows licensee to assist both buyer and seller • License cannot represent one party to detriment of other party when transaction broker for both • Owe duties even though disclosure not required © 2017 Kaplan, Inc.

Limited Confidentiality • Prevents disclosure – Seller will accept price less than listed price – Buyer will pay price greater than written offer – Motivation for selling or buying – Seller or buyer will agree to other financing terms © 2017 Kaplan, Inc.

Which Brokerage Relationship? Which relationships require these three duties 1. A Account for all funds 2. D Deal honestly and fairly 3. D Disclose all known facts that affect the value of residential property © 2017 Kaplan, Inc.

Answer The three duties are required of all three brokerage relationships. – No brokerage relationship – Single agent – Transaction broker © 2017 Kaplan, Inc.

Which Brokerage Relationship? • What are the four duties owed to the principal in a single agency relationship? – Hint: COLD © 2017 Kaplan, Inc.

Answer • The four duties owed to the principal in a single agency relationship are 1. C Confidentiality 2. O Obedience 3. L Loyalty 4. D Disclosure (full) © 2017 Kaplan, Inc.

Which Brokerage Relationship? • • Use skill, care, and diligence Present all offers and counteroffers Exercise limited confidentiality Perform additional duties agree to a. No brokerage relationship b. Single agency relationship c. Transaction broker relationship © 2017 Kaplan, Inc.

Answer • • Use skill, care, and diligence = b and c Present all offers and counteroffers = b and c Exercise limited confidentiality = c Perform additional duties agreed to = c © 2017 Kaplan, Inc.

Written Disclosure Required in Residential Sales • Written disclosures are required when operating in a single agency or no brokerage relationship • Residential sale defined as – Sale of improved residential property of four or fewer units – Unimproved residential property intended for four or fewer units – Agricultural property of 10 acres or less © 2017 Kaplan, Inc.

Disclosure Does Not Apply To: • • • Nonresidential transactions Leases Auctions Appraisals Business opportunities © 2017 Kaplan, Inc.

Brokerage Relationship Limitations • If a brokerage firm is – Transaction broker for seller, then • Transaction broker for buyer or • No brokerage relationship with buyer – Single agent for seller, then • No brokerage relationship with buyer • Associates for the broker are subagents of the seller © 2017 Kaplan, Inc.

Practical Example #1 • Sales associate Amy works for XYZ Realty, Inc. Amy lists a house and establishes a single agent relationship with the seller. A buyer contacts Amy and wants to view the property. What relationship may Amy have with this buyer? © 2017 Kaplan, Inc.

Example #1 Solution • Because Amy and XYZ Realty, Inc. have a single agent relationship with the seller, Amy must represent the buyer in a No Brokerage Relationship capacity. • Single agent for the seller No brokerage relationship with the buyer © 2017 Kaplan, Inc.

Practical Example #2 • Broker Brown is working with buyer Jones as a transaction broker. Broker Brown has also listed a property that buyer Jones is considering purchasing. • If buyer Jones is going to buy this property, what relationship can Broker Brown have with the owner of the listed property? © 2017 Kaplan, Inc.

Example #2 Solution • Broker Brown can list the property as a Transaction Broker or with No Brokerage Relationship. He cannot be a Transaction Broker for the buyer and a Single Agent for the seller. • Transaction broker with buyer Transaction broker or no brokerage relationship (nonrepresentation) with seller © 2017 Kaplan, Inc.

Exceptions to Disclosure Requirements • Licensee knows that a single agent or transaction broker represents buyer or seller • Bona fide open house or model showing • Unanticipated casual encounters • Responding to general questions of advertised property • Communications concern services offered • When selling new residential units built by the owner © 2017 Kaplan, Inc.

Transition to Single Agent Relationship • F. S. 475 permits a licensee to change the relationship from a single agent to a transaction broker, the principal must sign – Consent to Transition to Transaction Broker Notice © 2017 Kaplan, Inc.

Practical Example #3 • Sales associates Yvette and Zach work for Extra-Fine Realty. Yvette has just listed the house at 3456 Main St. as a single agent for the seller. Zach is a single agent for buyer Black. If buyer Black wants to view the house at 3456 Main St. , how can this legally happen? © 2017 Kaplan, Inc.

Example #3 Solution • Because Extra-Fine Realty is acting as a single agent for both the seller of 3456 Main St. and for buyer Black, both the seller and the buyer must sign a Consent to Transition to Transaction Broker notice to show this property to buyer Black. © 2017 Kaplan, Inc.

Disclosure Format and Timing • Duties must be described and disclosed in writing (single agent or no brokerage relationship) • Can be included in listing agreement – Signature line inserted following disclosure – Single agent disclosure before, or at time of entering into a listing agreement, or before showing property – No brokerage notice before showing property © 2017 Kaplan, Inc.

Recordkeeping and Retention • Brokers must retain brokerage relationship disclosures for 5 years – Sale transactions that result in a written contract – Includes files of properties that fail to close – May be filed in a digital format © 2017 Kaplan, Inc.

Nonresidential Transactions • Designated sales associates • At the request of the buyer and seller, the broker may designate sales associates to act as single agents for different customers in the same transaction • Buyer and seller each must have assets of at least $1 million • Written disclosures – Single agent disclosure – Designated sales associate disclosure © 2017 Kaplan, Inc.

Terminating a Brokerage Relationship • • Fulfillment of brokerage relationship purpose Mutual agreement to terminate Expiration of agreement Broker renounces by giving notice Principal revokes relationship by giving notice Death of broker or principal Destruction of property or eminent domain Bankruptcy of principal or customer © 2017 Kaplan, Inc.