The Real Estate School
U N I T 1 5
AGENCY IN REAL ESTATE
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CHANGE IN PRICES OVER THE LAST 5 YEARS
2

THE POWER OF EQUITY BUILD-UP
3
2018
$150,000
- 5,250
$144,750
Sale Price
Down Payment
Mortgage (FHA)
Bought a house in
2023
$150,000
68,100
$218,100
136,737
5,250
$76,113
Sale Price
Appreciation (PA = 45.4%)
Home Value
Mortgage Payoff
Less: Down Pymt.
Equity
SOLD the house in

OVERVIEW
• Agency – The special relationship between a real estate licensee
and the parties represented in a real estate transaction
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OVERVIEW
• Agency is governed by two kinds of law:
1. Common Law – The rules of
society established by
tradition and court decisions
2. Statutory Law – Laws, rules,
and regulations enacted by
legislatures and other
governing bodies
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OVERVIEW
• The principal-agent relationship evolved from the master-servant
relationship under English common law
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LANDMARK COURT CASE
• So why is Agency such a serious issue?
• Dismuke vs. Edina Realty (1993) and Bokusky vs. Edina Realty
(1994)
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LANDMARK COURT CASE
• Buyers sought $200 Million in earned
commissions over a six year period
involving over 6,000 transactions
• Sellers sought $75 Million in damages
claiming they were not represented
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LANDMARK COURT CASE
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• Case revolved around the adequacy of Edina Realty’s Dual Agency
Disclosure
• OUTCOME: Although Edina’s agents
provided the disclosure, the
document and agents did not
adequately explain the effects
of dual agency

AGENCY CONCEPTS
• Law of Agency defines the rights and duties of the principal and
the agent
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AGENCY CONCEPTS
• Definitions:
• Agent – Individual authorized and consents to represent the
interest of another
• Subagent – Individual who has been delegated some authority
or responsibility by another party
• Principal – Individual who hires the agent and delegates
responsibility of representing the principal
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AGENCY CONCEPTS
• Definitions: (cont’d)
• Agency – The fiduciary relationship between the principal and
agent wherein the agent is authorized to represent the principal
in a transaction
• Fiduciary Relationship – One in which the agent is placed in a
position of special trust and confidence to the principal
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AGENCY CONCEPTS
• Definitions: (cont’d)
• Client – Principal that receives advice and counsel (written
agreement exists between the parties)
• Customer – A non-represented consumer that receives some
level of service (no written agreement exists between the
parties)
• Nonagent – Middleman between a buyer and a seller
(transaction licensee)
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AGENCY CONCEPTS
• In Pennsylvania, a consumer is one who may engage a broker to
provide services under a variety of working relationships
• Buyer Agent, Designated Agent, Dual
Agent, Seller Agent, Subagent, and
Transaction Licensee
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AGENCY CONCEPTS
• Fiduciary Responsibilities – They are not just moral and ethical;
they are the law
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• Care
• Obedience
• Accounting
• Loyalty
• Disclosure
• Confidentiality
Under Common Law of
Agency, an Agent
owes principal
COALD+C

AGENCY CONCEPTS
• Figure 15.1 shows the obligations to
the Buyer if they are a Customer or
Client (principal)
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AGENCY CONCEPTS
• Fiduciary Responsibilities - Care
• Agents must exercise a reasonable degree of care while
transacting business entrusted to them
• Agents are liable to the principal
for any loss resulting from negligence
• Errors & Omissions Insurance (E&O)
covers liability for errors and
negligence
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AGENCY CONCEPTS
• Fiduciary Responsibilities - Obedience
• Agents must act in good faith obeying
the principal’s instructions
• Not obligated to obey instructions
that are unlawful or unethical
• Agent may be liable for any losses
principal suffers if they exceed
authority assigned
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• Fiduciary Responsibilities - Accounting
• Commingling – Mixing client monies
with personal or general business
funds is illegal
• Conversion – The illegal use of
entrusted money
• Required to give copies of documents
to all parties and retain for 3 years
AGENCY CONCEPTS
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• Fiduciary Responsibilities - Loyalty
• Requires that agents place the principal’s
interest above those of all others,
including the agent’s own self-interest
• Agents must disclose their interest
when selling their own real estate
and buying the real estate of their
principal
AGENCY CONCEPTS
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• Fiduciary Responsibilities - Disclosure
• Agent has duty to inform the principal
of all facts that might affect the
principal’s position in a transaction
• Includes material facts that the agent knows
or should have known
• Seller must disclose latent defects which may
not be discovered during inspection
AGENCY CONCEPTS
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• Fiduciary Responsibilities – Disclosure of Environmental Hazards
• Agent should ensure that their clients are aware of potential
issues with environmental health hazards
• Examples: Seller Property
Disclosure Statement,
Lead-based Paint Disclosure
AGENCY CONCEPTS
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Environmental
Hazards

• Fiduciary Responsibilities – Confidentiality
• Agent may not disclose the principal’s
financial condition
• Confidentiality does not extend to
material facts about the condition
of the property
• Anything learned about a client
must remain confidential forever
AGENCY CONCEPTS
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AGENCY CONCEPTS
• Client versus Customer Service:
• The Client is who the agent gives advice and counsel
• Agent works FOR the client (principal)
• The Customer is entitled to factual
information and fair and honest
dealings
• Agent works WITH the
customer
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CREATION & TERMINATION OF AGENCY
• The relationship must be consensual and is formed when the
principal delegates authority and the agent consents to act
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CREATION & TERMINATION OF AGENCY
• Agency Relationships may be created in two ways:
1. Express Agency – The parties formally express their intention
to establish an agency relationship and state its terms and
conditions
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Written
Oral
- or -

CREATION & TERMINATION OF AGENCY
• Agency Relationships may be created in two ways:
1. Express Agency (cont’d)
• In Pennsylvania, all exclusive contracts of employment must
be in writing
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Listing
Agreement
Buyer Agency
Agreement

CREATION & TERMINATION OF AGENCY
• Agency Relationships may be created in two ways:
2. Implied Agency – Occurs when the actions of the parties
indicate that they have mutually consented to an agency
agreement
• Licensee may create an
agency relationship
unintentionally, inadvertently,
or accidently by their actions
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CREATION & TERMINATION OF AGENCY
• Agency Coupled With an Interest – Relationship in which the agent
is given an interest in the subject of the agency (i.e. the property
being sold)
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CREATION & TERMINATION OF AGENCY
• The source of compensation does not determine agency
• An agent does not necessarily
represent the person who pays
the agent’s commission
• Written agency agreement
should state how the agent
is being compensated and
explain alternatives
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• Termination of Agency
• Completion, performance, or fulfillment of
the purpose
• Death or incapacity of either party
• Destruction or condemnation of property
• Expiration of the terms
• Mutual agreement
• Breach by one of the parties
• Operation of law (i.e. bankruptcy)
CREATION & TERMINATION OF AGENCY
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• An agent’s empowerment to represent the principal depends
solely on the authorization to do so
• Universal Agent – Empowered to do anything the principal
could do
• General Agent – Represent the principal in a broad range of
matters related to a particular business
• Special Agent – Authorized to represent the principal in one
specific act or transaction
TYPES OF AGENCY RELATIONSHIPS
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• Real Estate Licensing and Registration Act (RELRA) permits (but
does not require) broker to act as:
• Agent of Buyer (or Tenant)
• Agent of Seller (or Landlord)
• Dual Agent – Represent both parties in the same transaction
• Transaction Licensee – Nonagent
TYPES OF AGENCY RELATIONSHIPS
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• Single Agency – Agent
represents only one party in a
single transaction
TYPES OF AGENCY RELATIONSHIPS
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• Single Agency (Figure 15.2)
TYPES OF AGENCY RELATIONSHIPS
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Agent
(ABC Realty)
Client
Customer
Written Listing
Agreement
No Written
Agreement

• Single Agency (cont’d)
• Seller as Principal – Seller enters a
listing agreement with a broker to
market the seller’s real estate
TYPES OF AGENCY RELATIONSHIPS
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• Single Agency (cont’d)
• Buyer as Principal – A Buyer who
contracts with a broker to locate
property and represent the buyer’s
interests in a transaction
TYPES OF AGENCY RELATIONSHIPS
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• Single Agency (cont’d)
• Landlord as Principal – An owner
who employs a broker to market,
lease, maintain, or manage the
owner’s property
TYPES OF AGENCY RELATIONSHIPS
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• Single Agency (cont’d)
• Tenant as Principal – A tenant who
contracts with a broker to locate
property suitable for the tenant’s
specific purposes
TYPES OF AGENCY RELATIONSHIPS
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• Single Agency (cont’d)
• Subagency – Created when one
broker appoints another broker
to help perform client-based
functions on the principal’s
behalf
TYPES OF AGENCY RELATIONSHIPS
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• Subagency (Figure 15.3)
TYPES OF AGENCY RELATIONSHIPS
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Agent
(ABC Realty)
Subagent
(XYZ Realty)
Client
(Seller)
Customer
(Buyer)
Written Listing
Agreement
No Written
Agreement

• Dual Agency – Agent represents two principals in the same
transaction
• Must fulfill fiduciary responsibilities to one principal without
compromising the interests of the other
• Disclosed Dual Agency – Pennsylvania licensees may act for
more than one party in a transaction only with the knowledge
and written consent of all parties
TYPES OF AGENCY RELATIONSHIPS
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• Dual Agency (Figure 15.4)
TYPES OF AGENCY RELATIONSHIPS
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Agent
(ABC Realty)
Client
(Seller)
Written Listing
Agreement
w/Dual Agency
Clause
Written Buyer Agency
Agreement
w/Dual Agency
Clause
Client
(Buyer)

• Dual Agency (cont’d)
• Designated Agency – In Pennsylvania, a process that
accommodates an in-house sale in which two different affiliated
licensees are involved
• The Broker is a dual agent
• Written disclosure of this status is required
TYPES OF AGENCY RELATIONSHIPS
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• Dual Agency with Designated Agency
TYPES OF AGENCY RELATIONSHIPS
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Broker
(ABC Realty)
Client
(Seller)
Written Listing
Agreement
w/Dual Agency
Clause
Written Buyer Agency
Agreement
w/Dual Agency
Clause
Client
(Buyer)
Agent B
(ABC Realty)
Agent A
(ABC Realty)
Designated
Agent for Seller
Designated
Agent for Buyer
Dual Agent

• Dual Agency (cont’d)
• Undisclosed Dual Agency – It might occur unintentionally or
inadvertently by agent’s words and actions
• Violation of license law
• Can result in rescission of contract, forfeiture of commission,
lawsuit for damages, and license issues
TYPES OF AGENCY RELATIONSHIPS
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• Transaction Licensee (Nonagency) – Not an agent of either party
• Licensee helps buyer
and seller with
paperwork
• Buyer and seller
negotiate sale without
representation
TYPES OF AGENCY RELATIONSHIPS
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• Disclosure of Agency – Mandatory that real estate licensees
disclose who they represent
• Pennsylvania Consumer Notice –
Disclosure summary for the
purchase, sale, or lease of
residential or commercial real
estate
CONSUMER NOTICE
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Figure 15.5

• Major Provisions of Consumer Notice:
• Statement advising parties that they are not represented unless
they sign a written agreement
• General duties owed to all parties
• Description of business relationships allowed in PA
• Contractual terms that must be in agreements
• Statement about the Real Estate Recovery Fund
CONSUMER NOTICE
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• Licensees must discuss the
Consumer Notice at the initial
interview or the first
substantive discussion between
a licensee and consumer about
the consumer’s needs
CONSUMER NOTICE
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• If initial meeting is via phone or e-mail, licensees are required to
make the following disclosure to consumer:
“The real estate law requires that I provide you with a written consumer notice that
describes the various business relationship choices that you may have with a real estate
licensee. Since we are discussing real estate without you having the benefit of the
Consumer Notice, I have the duty to advise you that any information you give me at
this time is not considered to be confidential, and nay information you give me will not
be considered confidential unless and until you and I enter into a business relationship.
At our first meeting I will provide you with a written Consumer Notice which explains
those business relationships and my corresponding duties to you.”
CONSUMER NOTICE
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• Make sure consumer is aware that
this document is not a contract
• It is only a disclosure
CONSUMER NOTICE
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• States that agents are REQUIRED to provide this document
to consumer
Question:
What should you do if the consumer refuses to sign?
CONSUMER NOTICE
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• The document describes the various agency relationships that
the licensee may enter into with the consumer
CONSUMER NOTICE
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Seller
Agent
Buyer
Agent
Dual
Agent
Designated
Agent
Transaction
Licensee

• Describes the duties that agents owe all consumers regardless of
representation status
CONSUMER NOTICE
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• Disclose conflicts of interests and financial interests
• Provide assistance with document preparation
• Advise consumer to seek expert advice beyond
licensee’s expertise
• Keep consumer informed
• Disclose financial interest in a service at the time
service is recommended

• Describes the duties that agents owe all consumers regardless of
representation status (cont’d)
CONSUMER NOTICE
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• Exercise reasonable professional skill and care
• Deal honestly and in good faith
• Present all documents associated with transaction
as soon as possible
• Comply with the Real Estate Seller Disclosure Law
• Account for escrow and deposit funds

• Indicates terms that are negotiable between the consumer and
licensee
CONSUMER NOTICE
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• Duration of licensee’s employment
• Licensee’s fees
• Scope of licensees activities
• Broker’s cooperation with sharing of fees
with other brokers

Before you disclose any financial
information to a licensee, be advised
that unless you select a business
relationship by signing a written
agreement, the licensee in NOT
representing you. A business
relationship is NOT presumed.
CONSUMER NOTICE
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• The last statement on the notice is: