This document discusses the principal-broker relationship and agency in real estate. It defines agency as being created when one person delegates authority to another to act on their behalf. The principal is the property owner, the agent is the broker, and the client is the principal. It outlines the broker's obligations to the principal, including care, obedience, accounting, and loyalty. It also discusses issues like establishing authority, disclosure liability, red flags to watch for in transactions, and agency disclosure requirements.

1. Chapter 21: The Principal-Broker
Relationship: Agency
© OnCourse Learning

2. AGENCY
Created when one person delegates to
another the right to act on his behalf.
General agency – the right to bind the
principal to perform a particular act.
Principal = Property owner
Agent = Broker
Client = Principal
© OnCourse Learning

3. ESTABLISHING AUTHORITY
Written – contractual agreement
Implied – custom in the industry
Ostensible – conduct of the parties
Ratification – agency established af ter the fact
Estoppel – due to principles failure to maintain due
diligence over the agent who exercises powers not
granted him.
© OnCourse Learning

4. Commission
Principal
Skills and Knowledge
Agent
AGENCY RELATIONSHIP
© OnCourse Learning

5. BROKER’S OBLIGATION TO
PRINCIPAL
• Care
• Obedience
• Accounting
• Loyalty
(Competence and
expertise)
(Lawful instructions)
(For funds received)
(Principal’s interest first)
© OnCourse Learning

6. © OnCourse Learning
COMMINGLING
When broker places money
belonging to a client or
customer in a personal
account.

7. DISCLOSURE LIABILITY
Said wrongly
to mislead
Unsaid in order
to mislead
Said without
checking the facts
Not said and
facts not checked
A Facts Broker
Knows
B Facts Broker
Does not know
© OnCourse Learning

8. RED FLAGS
“As Is”
Puffing
Lead-based paint disclosure
on homes built prior to
1978
Home Inspections
© OnCourse Learning

9. BUYER AGENCY
The exact opposite theory from the
traditional seller representation.
Here the principal or client is the buyer!
Agent owes the care of agency duties to
buyer.
© OnCourse Learning

10. AGENCY DISCLOSURE
Agency relationships can be created without
written agreements and consumers must be
informed who the agent represents so there
is a clear understanding of the agent’s role in
a transaction.
Many states now require disclosure forms.
© OnCourse Learning

11. © OnCourse Learning

12. SELLER DISCLOSURE STATEMENT
Seller disclosure statements are
a detailed disclosure of property
defects (or lack thereof) on a
form often produced by a real
estate trade association.
© OnCourse Learning

13. INFORMATION
Owner disclosure information
Interstate land disclosure statements
Antitrust laws
Price fixing
Boycotting
Errors and Omission insurance
© OnCourse Learning

14. Key Terms
 Agent
 Boycotting
 Commingling
 Dual agency
 Middleman
 Ostensible authority
 Price fixing
 Principal
 Puffing
 Third parties
© OnCourse Learning