Concepts Definitions

• Law of Agency: The body of legal rules governing the relationship between a principal and their agent, imposing fiduciary duties on the agent and vicarious liability on the principal for the agent’s actions. This relationship begins with trust between parties and revolves around the agent acting on behalf of the principal.
• Fiduciary Relationship: A relationship built upon a position of trust and loyalty where one party (the fiduciary, e.g., an agent) is obligated to act in good faith and in the best interests of another party (the principal or beneficiary). In real estate, this means the agent must show utmost care, obedience, accounting, loyalty, and disclosure of material facts (often remembered by the acronym COALD or OLDCAR).
• Broker/Agent as Agent: The employing broker in an office is considered the main agent in any transaction originating from their office, even if a salesperson primarily handles the deal. Salespersons act under the broker’s license and supervision.
• Agent’s Duties to Third Parties: While primary duties are to the principal, agents must treat third parties with fairness, honesty, truthfulness, and good faith. They are also expected to act with reasonable care and skill and must disclose all known material facts to third parties, even if not explicitly asked.
• Material Fact: A fact that is so important that it could affect the decision of a party in a particular transaction. Agents are legally required to disclose all known material facts, such as property defects, to principals and third parties. An intentional misrepresentation of a material fact is actual fraud, while unintentional can be negligence or constructive fraud.
• Confidentiality: A core component of loyalty, requiring agents to not share confidential information or strategies disclosed by the principal, such as the seller’s bottom line on price, with other parties to a real estate transaction. This duty extends beyond the transaction’s closing.

Pages: 1 2 3