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| CREATION OF AGENCY The relationship between principal and agent, wherein an agent is authorized by the principal to act on the principal’s behalf in business transaction with a third party. The agency relationship results from mutual consent between the principal and agent. Formalities, such as compensation or a written agreement are not necessary to create agency; nor does agency have to be intended, it can be created accidentally. It is significant to know that Agency can be established through various methods. (1) BY EXPRESS AGREEMENT The most common method of creating an agency relationship. An express agreement should set out the definite understanding of client and brokerage (principal and agent), regarding the relationship. Common law DOES NOT require the agency relationship to be expressed in writing; however, it is obviously better for both principal and agent that a written agreement/contract exists. In the real estate profession the practice of written authority is commonplace through the use of listing and buyer agency forms. (2) BY RATIFICATION Agency is created by ratification if the principal accepts the benefits of an agent’s previously unauthorized act. For example, Seller Smith, adopts the actions of ABC Realty Inc., although the actions of ABC Realty Inc. were carried out without the express authority of Smith. Ratification can occur when a salesperson is attempting to obtain listings and the homeowner will not sign an agreement/contract but advises the salesperson that if he/she has interested buyers to bring them over. When the salesperson does introduce a buyer and secures a sale, the seller has accepted the benefits and liabilities of that sale and thereby becomes the principal. When the agent expects to create agency retroactively, the agent must act on behalf of the principal even before agency has been ratified. (3) BY ESTOPPEL OR CONDUCT Occurs when a principal gives the impression to a third person that another person is acting on his/her behalf as an agent. For example, Smith, by deeds or conduct authorizes Jones, to act as his/her agent. Smith is then prevented from denying the existence of Jones’ agency to a third party who dealt with Jones on the basis of Smith’s words and conduct. In real estate, if a seller indicates to prospective buyers that they should contact a specific salesperson about the purchase of the seller’s home, the seller may be legally barred from denying that the agency existed, even though a listing was not signed. Agency may also be created when an agent gives the impression to a third party that the agent is protecting and promoting the interests of the third party. (4) BY OPERATION OF LAW (By Necessity) Occurs when an emergency situation exists whereby the agent has the authority to bind his/her principal, although under normal circumstances this right would not exist. For example, an agent might be required to save goods of a client in his/her absence when unable to reach the principal for a decision given the need for immediate action. This type of circumstance could occur to the master of a ship or carrier of perishable produce, but is unlikely to happen in matters surrounding real estate transactions. (5) BY IMPLIED AUTHORITY The authority to act on behalf of another may be implied, under certain circumstances. For example, if Smith had given ABC Realty Inc. express authority to do something, the courts would imply (in the absence of evidence to the contrary), that Smith has also given ABC Realty Inc. the authority to do those things necessary to carry out the express authority. Currently, Realtors are required to be encouraging both Buyers' and Sellers' to enter into an Agency Agreement in order to properly represent the interests of the consumer. The public for the most part, are still reluctant to committ to any one Realtor until they are confident they can trust their competancy and integrity. Back to www.realestate1o1.com |