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Common Law Agency & its Application to the Real Estate Profession
by Alan R. Seher and Marc S. Weissman, Weiss & Weissman, Inc.
Mr. Seher is an attorney and real estate broker.

Introduction
How The Agency Relationship Is Created
Powers Of An Agent
Duties of An Agent
Fiduciary Responsibilites
Liabilities Of Principal
Liabilities Of Agent
Conclusion

Introduction
Real Estate brokers have traditionally acted as the agent of either a seller, or buyer, or both. An agent is usually defined as a person one who represents another person, called a principal, in dealings with third persons. The legal rules which govern agency are simple in concept, but have often proved difficult to apply.

The principles of agency have their roots in "common law." Common law developed in England primarily from judicial decisions based on the long term benefit of society. Common law adapts as the community and society changes. Throughout the United States (with the exception of Louisiana which derives its laws from the French), common law forms the basis of each state's legal system.

Generally speaking, the common law is in force except as specifically modified by statute or by a state's constitution.

To codify, clarify, change, limit and/or expand common law principles, each state (other than Louisiana) has passed statutes.

Most states have also adopted special laws, rules, and regulations affecting professionals engaged in real estate sales and brokerage. These rules and regulations impose special requirements on the agency relationship in the real estate context. They have the effect of limiting, redefining and superseding the common and statutory laws which would otherwise apply in non-real estate situations.

Further adding to the complexity of the laws governing agency in the context of real estate transactions, is the written agreement between the broker and his principal.

Thus, it is the interrelationship between common law, statutory law, and regulations applying to real estate matters which govern the scope of the broker-principal relationship in a real estate transaction. Nevertheless, certain basic principles apply to the agency relationship throughout the United States.

How The Agency Relationship Is Created
There are three basic ways an agency may be created: appointment; estoppel; or ratification.

Appointment means that the principal gives express authorization to the agent. Under both common and statutory law, this requires a writing when the sale of real estate is involved.
Estoppel means that if the principal causes third persons to believe that someone is his agent and that third party deals with the agent, then the principal cannot deny the agency relationship even though it did not exist in fact.
Ratification means that if a person having no authority whatsoever, purports to act as an agent and the purported principal later adopts the acts of that agent, an agency relationship has retroactively been created.

Powers Of An Agent
An agent has the powers which are conferred upon him by the principal. In addition, the agent has all such powers as are necessary, proper, or usual to enable him to accomplish the purpose of the agency. The powers granted to an agent may be restricted by contract or by statute.

Duties of An Agent
An agent must use reasonable skill, care, and diligence in all that he does under his authority as an agent. An agent must also obey the instructions of his principal, and must account for all money or property he receives on behalf of his principal.

In addition to the above duties, the agent is a fiduciary.

Fiduciary duties include the highest degree of loyalty and good faith towards the principal. It also requires that the agent refrain from competing with the principal in any way or in making any secret profits in connection with the agency.

The fiduciary relationship also imposes the affirmative duty on the agent to give advice on the subject matter of the agency, to disclose all relevant information affecting the subject matter of agency, and to keep the principal's affairs confidential. As such, an agent cannot represent both parties to a transaction (dual agency) unless there is full and complete disclosure, including advising the principal as to the consequences of the dual agency.

Liabilities Of Principal
The principal is liable for the actions of his agent under the doctrine of respondeat superior. The knowledge of an agent is imputed to the principal and the principal is deemed to know all facts known by the agent. The knowledge imputed to the principal includes relevant knowledge received prior to the commencement of the agency. Torts committed by agents such as negligence and fraud are also attributed to the principal.

Liabilities Of Agent
An agent is liable to his principal for any violation of his duties imposed upon him by virtue of the agency. An agent may also be liable to a third party for his acts that have been directed towards that third party.

Conclusion
The law governing the principal/agent relationship in a real estate transaction is dependent on the interplay of common law, statutory law, and regulation. As this varies greatly from state to state, it is important for real estate professionals as well as potential buyers and sellers to familiarize themselves with the specific rules in their own jurisdiction.

Marc Weissman is a Specialist in Estate Planning, Trust and Probate Law, Certified by the State Bar of California Board of Legal Specialization. You can contact him through his Web Page at www.wwlaw.com