Brokerage Relationships

  • Describe which provisions of the Brokerage Relationship Disclosure Act apply only to residential real estate sales and list types of real estate activities that are exempt from the disclosure requirements
  • Describe the required content and format of the various disclosure forms
  • Describe the procedure for giving the Notice of Non-representation when the first contact is not a face-to-face meeting and the events that do not constitute the first contact according to F.S. 475
  • Distinguish among the three forms of authorized brokerage relationships
  • List and describe the duties owed in the various authorized relationships
  • Describe the disclosure procedures for the various authorized relationships
  • Know the procedure for the transition from a single agent to a transaction broker
  • Describe the disclosure requirements for non-residential transactions where the buyer and seller have assets of $1 million or more
  • List the events that will cause an agency relationship to be terminated

Concept of agency
Historical perspective of agency relationships
Statutory law

Over the years, the relationship between real estate licensees and sellers and buyers has gone through many changes. Prior to agency laws, it was assumed that all real estate licensees automatically worked for sellers by virtue of the listing contract. In fact, the Multiple Listing Service (MLS) got its start originally by brokers co-operating to sell each other’s listings.

This co-operation between brokers basically created an automatic sub-agency with each other, meaning that all the brokers were working for their sellers. Buyers, at that time, were not being represented. In the mid-1980s, buyers became aware of their rights to have representation if they wanted it.

The original agency laws created in the state of Florida brought forward several concepts. Brokers were allowed to represent sellers as a single agent, buyers as a single agent, or represent both in a DUAL AGENCY capacity which allowed the broker to represent both the seller and the buyer at the same time with full fiduciary capacities.

These laws became very confusing, causing brokers to have a difficult time acting as a dual agent. Certainly, a conflict of interest existed. Agency laws changed to be more practical while at the same time ensuring the public’s protection.

Today, we still have a single agency relationship with full fiduciary duties which allows a broker to represent either a buyer or seller, but not both at the same time. The TRANSACTION BROKER, however, has changed its complexity and, essentially, its basic meaning.

Today a Transaction Broker is permitted to work for both the buyer and the seller in the same transaction in a limited representative capacity. Dual agent was repealed and is no longer a valid method of agency in Florida.

The FREC has also authorized real estate brokers to work in a non-representative capacity. That is, a licensee can work with both the buyer and/or the seller and have no fiduciary duties at all.

Agency Relationships
Agency relationships were first created under common law (case law) and then later were also created under statutory laws enacted by the Florida legislature. By definition, the PRINCIPAL is the entity or person who has given power to the AGENT to act on the Principal’s behalf. The Agent is then authorized to perform acts specified by the Principal. In real estate, a Principal is defined as the person who has employed the broker, as a single agent, to perform services of real estate.

A CUSTOMER is a person who is or maybe a seller or buyer of real property and may or may not be represented by a licensee. A broker is permitted to “work with” a customer but is prohibited from “working for” a customer in a fiduciary capacity.

a) Types of Agents:

A SPECIAL AGENT is an agent who is authorized to perform only a specific duty or task. In real estate, a broker employed by a seller to locate a buyer is considered to be a Special Agent.

A GENERAL AGENT is an agent who is authorized to perform duties and tasks related to a specific business or employment. In real estate, a property manager who handles leases, maintenance, and tenant relations for a Principal would be considered a General Agent.

b) Fiduciary Relationship: Florida law defines FIDUCIARY as a broker in a relationship of trust and confidence between the broker as the agent and the seller or buyer as a Principal. A fiduciary relationship begins when a broker accepts employment as a single agent with either the seller or the buyer, but not both at the same time.

The concept of Caveat Emptor (“let the buyer beware”) has been eliminated to protect consumers from undisclosed material defects of a property. Now a seller, or his or her agent, must disclose all known material defects to all potential buyers.

SUB-AGENCY can describe the relationship between two brokers who are representing the same Principal (acting as co-brokers), and it can also describe the relationship between a broker and a sales associate working for that broker. The sales associate is considered to be a sub-agent of the broker.

A client who has retained a broker to perform a real estate service is considered to be that broker’s employer or Principal. On the other hand, a CUSTOMER, also known as a prospect, is the person with whom the broker is working but not as that customer’s agent.

The Customer may be represented by another broker or maybe unrepresented. Although the Customer does not employ the broker, the Customer has the right to rely on factual statements made by the broker.

Brokerage Relationships
Section 475.278 of Florida Statutes has been designated as the Brokers’ Relationship Disclosure Act. This law gives certain provisions in order to clarify the relationship of brokers to sellers and buyers. The intent of the law is:

Disclosed dual agency is forbidden in Florida (meaning that representing both buyer and seller at the same time with the consent of both is forbidden).
Disclosure requirements for real estate licensees relating to authorized forms of broker representation are established.
Single agents may represent either a buyer or a seller, but not both, in a real estate transaction.
Transaction brokers provide a limited form of non-fiduciary representation to a buyer, a seller or both in a real estate transaction.
Since the beginning of time, one person may have had another person represent him in a transaction of some type. When a person gets a substitute person and asks that person to perform certain (or many) tasks for him, it is said he hires an “agent.”

By definition, an Agent is a person who is empowered by contract (or action) to represent the interest of someone called a Principal. This type of relationship is called a “Fiduciary Relationship,” which means one of utmost trust and loyalty.

When one person is empowered by another to represent him in any transaction, it is called an agency relationship. The law defining agency relationships is called “The Law of Agency.”

The agency relationship is governed by statutory law, meaning the laws that are currently on record in the country, and common law, meaning procedures that have been established by a precedent of cases that have gone before. Representing a principal in a transaction is a very important responsibility.

Applies to residential sales

The scope of this law is to apply only to residential sales. Residential sales are defined as the sale of improved residential property of four units or fewer, the sale of unimproved residential property intended for use of four units or fewer, or the sale of agricultural property of 10 acres or less.

Disclosure requirements do not apply to:

  • Non-residential transactions;
  • The rental or leasing of real property, unless an option to purchase all or a portion of the property, improved with four or fewer residential units, is given;
  • Auctions;
  • Appraisals;

Dispositions of any interest in business enterprises or business opportunities, except for property with four or fewer residential units.


The law further states: Without consideration of the related facts and circumstances, the mere payment or promise to pay compensation to a licensee does not determine whether an agency or transactional brokerage relationship exists between a licensee and a seller, landlord, buyer, or tenant. In other words, the way the parties act (behave) is much more important than the paying of a commission or other important consideration.

Transaction Broker Relationship

Transaction Broker Relationship: A TRANSACTION BROKER refers to a broker who provides LIMITED REPRESENTATION (non-fiduciary) to a buyer, a seller, or both in a real estate transaction but does not represent either in a fiduciary capacity or as a single agent.

The following duties are owed to the customer by the broker under the TRANSACTION BROKER relationship:

  • Dealing honestly and fairly
  • Accounting for all funds
  • Using skill, care, and diligence in the transaction
  • Disclosing all known facts that materially affect the value of a residential real property and are not readily observable
  • Presenting all offers and counteroffers in a timely manner, unless a party has previously directed the licensee otherwise in writing
  • Limited Confidentiality: Unless waived in writing by a party, this limited confidentiality will prevent disclosure that the seller will accept a price less than the listing price or that the buyer will pay a price greater than the price contained in an offer. Limited confidentiality also prohibits disclosure of the motivation of any party for selling or buying property, that a seller or buyer will agree to finance terms other than those offered, or any other information requested by a party to remain confidential.
  • Any additional duties that are mutually agreed upon with a party

Single Agent Relationship

The second type of authorized brokerage relationship is the Single Agency. A SINGLE AGENT is a broker who represents, as a fiduciary, either the buyer or the seller, but not both in the same transaction. In this relationship, the Principal is the party who has entered into a fiduciary relationship with a broker as an agent through a written listing contract or a buyer broker agreement. This form of representation carries with it the greatest legal liability for the broker.

The following duties are owed to the Principal by the broker under the Single Agent relationship:

To deal honestly and fairly
Loyalty: To look out for the Principal’s best interest over all other parties, including the broker
Confidentiality: Not to disclose any information that could be harmful to the Principal, even after the relationship has terminated
Obedience: To obey all lawful instructions or otherwise resign
Full Disclosure: Disclose all facts and rumors related to the property or a possible sale
Accounting for all funds: Holding in trust all deposits given to the broker
Skill, care, and diligence
Present all offers and counteroffers (oral and written) in a timely manner up until the time of closing, unless the Principal instructs otherwise

The Single Agent Notice Disclosure Form must be presented to a prospective Principal before, or at the time of, entering into a listing agreement, an agreement for representation, or before the showing of property, whichever occurs first. Although the prospective client is asked to sign the disclosure form, his or her signature is not mandatory.

When the Single Agent Notice Disclosure Form is incorporated into another document, such as a listing contract, the required disclosure notice must be of the same size type, or larger as other provisions of the document and must be conspicuous in its placement so as to advise the potential Principal of the single-agent duties.

Exhibit 10.2 Single Agency Disclosure Form

IMPORTANT NOTICE

FLORIDA LAW REQUIRES THAT REAL ESTATE LICENSEES PROVIDE THIS NOTICE TO ALL POTENTIAL SELLERS AND BUYERS OF REAL ESTATE.

You should not assume that any real estate broker or sales associate represents you unless you agree to engage a real estate licensee in an authorized brokerage relationship, either as a single agent or as a transaction broker. You are advised not to disclose any information you want to be held in confidence until you make a decision on representation.

SINGLE AGENT NOTICE

FLORIDA LAW REQUIRES THAT REAL ESTATE LICENSEES OPERATING AS SINGLE AGENTS DISCLOSE TO BUYERS AND SELLERS THEIR DUTIES.

As a single agent, (insert name of Real Estate Entity and its Associates) owes to you the following duties:

Dealing honestly and fairly;
Loyalty;
Confidentiality;
Obedience;
Full disclosure;
Accounting for all funds;
Skill, care, and diligence in the transaction;
Presenting all offers and counteroffers in a timely manner, unless a party has previously directed the licensee otherwise in writing; and
Disclosing all known facts that materially affect the value of residential real property and are not readily observable.

___________________________
Signature Date

___________________________
Signature Date

No Brokerage Relationship

The first type of authorized relationship is called NON-REPRESENTATION or No Brokerage Relationship. This type of representation has the least amount of legal liability for the broker. A real estate broker must provide a written “No Brokerage Relationship Notice” to all persons known to be unrepresented or that he or she is working within this manner prior to showing property. Although the customer is asked to sign the disclosure form, his or her signature is not mandatory.

Exhibit 10-A: No Brokerage Relationship Notice

IMPORTANT NOTICE

FLORIDA LAW REQUIRES THAT REAL ESTATE LICENSEES PROVIDE THIS

NOTICE TO POTENTIAL SELLERS AND BUYERS OF REAL ESTATE

You should not assume that any real estate broker or sales associate represents

you unless you agree to engage a real estate licensee in an authorized

brokerage relationship, either as a single agent or as a transaction broker. You

are advised not to disclose any information you want to be held in confidence

until you decide on representation.

NO BROKERAGE RELATIONSHIP NOTICE

FLORIDA LAW REQUIRES THAT REAL ESTATE LICENSEES WHO HAVE

NO BROKERAGE RELATIONSHIP WITH A POTENTIAL SELLER OR BUYER

DISCLOSE THEIR DUTIES TO SELLERS AND BUYERS.

As a real estate licensee who has no brokerage relationship with you,

_______________________________(insert name of Real Estate Entity and its

Associates) owe you the following duties:

1. Dealing honestly and fairly

2. Disclosing all known facts that materially affect the value of residential

real property which are not readily observable to the buyer.

3. Accounting

_______________ ______________________________

Date Signature

______________________________

Signature

Single Agent Relationship

The following duties are owed to the customer by the broker under the Non-Representation relationship:

1. Dealing honestly and fairly

2. Disclosing all known facts that materially affect the value of the residential real property which are not readily observable to the buyer

3. Accounting for all funds entrusted to the licensee

Disclosure Requirements

Applicable to Residential Sales:

Under Florida law, real estate licensees must provide prospective buyers and sellers of real estate with certain written disclosure forms. The disclosure requirements apply only to RESIDENTIAL SALES which are defined as improved residential properties up to four units, the sale of unimproved residential property intended for construction of up to four units, and the sale of agricultural property of ten acres or less.
The disclosure requirements do not apply to the following situations:

When a licensee knows that a potential seller or buyer is represented by a single agent or transaction broker.


When an owner is selling new residential units built by the owner, and the circumstances or setting should reasonably inform the potential buyer that the owner’s employee or single agent is acting on behalf of the owner, whether because of the location of the sales office or because of office signage, placards, or identification badges worn by the owner’s employee or single agent
Non-residential transactions or leasing of real property (unless an option to purchase is given with a residential property lease)
A bona fide “open house” or model home showing that does not involve eliciting confidential information, the execution of a contractual offer or an agreement for representation, or negotiations concerning price, terms, or conditions of a potential sale.


Auctions.

Exceptions to Disclosure Requirements

First Contact means the beginning (commencement) of the initial meeting or communication between a licensee and a seller or buyer except in situations where the licensee knows that the potential buyer or seller is represented by a single agent or transaction broker.

First Contact does not include:

A bona fide “open house” or model home showing that does not involve getting confidential information, the execution of an offer or an agreement for representation, or negotiations concerning price, terms or conditions of a potential sale.

Unanticipated causal encounters between a licensee and a seller or buyer that do not involve getting confidential information, the execution of an offer or an agreement for representation, or negotiations concerning price, terms or conditions of a potential sale.

Responding to general factual questions from a prospective buyer or seller concerning properties that have been listed for sale.
Situations in which a licensee’s communications with a customer are limited to providing general factual information, oral or written, about the qualifications, background, and services of the licensee or the licensee’s brokerage firm.

In any of the situations listed above, the first contact occurs when the communications between the licensee and the prospective buyer or seller proceed in any way beyond these conditions or limitations described above.

When first contact occurs during a telephone conversation or any other communication in which the licensee is unable to provide the required Notice of Non-representation, the licensee must provide an oral notice and thereafter provide the required Notice of Non-representation at the time of the first face-to-face contact, execution of a brokerage relationship agreement, or execution of a contractual agreement for purchase or sale, whichever comes first.

Transition to another Relationship

Occasionally, for a variety of reasons, it becomes necessary for a single agent to become a transaction broker. This change can be made at any time during the relationship between an agent and a principal, provided the agent gives the transition disclosure and the principal consents to the transition before a change in the relationship. CONSENT TO TRANSITION TO TRANSACTION BROKER form. Note that this form must be signed by the Principal to be effective. The Consent to Transition to Transaction Broker is the only disclosure form that must be signed. The consent form contains all of the information and disclosures required to become a transaction broker.

To make the transition, the agent must give Notice of Non-representation at First Contact and the single agent disclosure before, or at the time of, entering into a listing agreement or an agreement for representation. He must give the transition disclosure and secure the consent (signature) from the party. To make the transition, he must use the Transition format, in its correct form and correct information. (See Exhibit 10.4.) The disclosure must be in writing either as a separate and distinct disclosure or included as a part of another document such as listing agreement or other agreement for representation. When incorporated in other documents, the required notice must be of the same type or larger than other provisions of the document and must be conspicuous in its placement so as to advise customers of the duties of a transaction agent. The exception is that the first sentence of the disclosure which must be printed in uppercase and bold type.

Exhibit 10.4 Transition to Transaction Broker Disclosure

CONSENT TO TRANSITION TO TRANSACTION BROKER:

FLORIDA LAW ALLOWS REAL ESTATE LICENSEES WHO REPRESENT A BUYER OR SELLER AS A SINGLE AGENT TO CHANGE FROM A SINGLE AGENT RELATIONSHIP TO A TRANSACTION BROKERAGE RELATIONSHIP IN ORDER FOR THE LICENSEE TO ASSIST BOTH PARTIES IN A REAL ESTATE TRANSACTION BY PROVIDING A LIMITED FORM OF REPRESENTATION TO BOTH THE BUYER AND THE SELLER. THIS CHANGE IN RELATIONSHIP CANNOT OCCUR WITHOUT YOUR PRIOR WRITTEN CONSENT.

As a transaction broker, _________ (insert name of Real Estate Entity) and its Associates provide to you a limited form of representation that includes the following duties:

Dealing honestly and fairly;
Accounting for all funds;
Skill, care and diligence in the transaction;
Disclosing all known facts that materially affect the value of residential real property and are not readily observable by the buyer;
Presenting all offers and counteroffers in a timely manner, unless a party has previously directed the licensee otherwise in writing;
Limited Confidentiality, unless waived in writing by a party. This limited confidentiality will prevent disclosure that a seller will accept a price less than the asking price or listed price, that the buyer will pay a price greater than the price submitted in a written offer, the motivation of any party for selling or buying property, that a seller or buyer will agree to financing terms other than those offered, or any other information requested by a party to remain confidential; and
Any additional duties that are entered into by this or by separate written agreement.

Limited representation means that a buyer or seller is not responsible for the acts of the licensee.
Additionally, parties are giving up their rights to the undivided loyalty of the licensee. This aspect of limited representation allows a licensee to facilitate a real estate transaction by assisting both the buyer and the seller, but a licensee will not work to represent one party to the detriment of the other party when acting as a transaction broker to both parties.

I agree that my agent may assume the role and duties of a transaction broker.

____________________
Signature Date

____________________
Signature Date

Designated Sales Associates

In any real estate transaction, other than a residential sale where the buyer and seller have assets of $1 million or more, the broker may honor the request of the parties and designate sales associates to act as single agents for different customers in the same transaction. These single agents have the duties of a single agent as in 475.278(3), including disclosure requirements. In addition to the disclosure requirements, the buyer and seller shall both sign a disclosure stating that the broker should use the designated sales associate form of representation. The disclosure used in this situation is Exhibit 10.5

Exhibit 10.5 Designated Sales Associate Disclosure

FLORIDA LAW PROHIBITS A DESIGNATED SALES ASSOCIATE FROM DISCLOSING, EXCEPT TO THE BROKER OR PERSONS SPECIFIED BY THE BROKER, INFORMATION MADE CONFIDENTIAL BY REQUEST OR AT THE INSTRUCTION OF THE CUSTOMER THE DESIGNATED SALES ASSOCIATE IS REPRESENTING. HOWEVER, FLORIDA LAW ALLOWS A DESIGNATED SALES ASSOCIATE TO DISCLOSE INFORMATION ALLOWED TO BE DISCLOSED OR REQUIRED TO BE DISCLOSED BY LAW AND ALSO ALLOWS A DESIGNATED SALES ASSOCIATE TO DISCLOSE TO HIS OR HER BROKER, OR PERSONS SPECIFIED BY THE BROKER, CONFIDENTIAL INFORMATION OF A CUSTOMER FOR THE PURPOSE OF SEEKING ADVICE OR ASSISTANCE FOR THE BENEFIT OF THE CUSTOMER IN REGARD TO A TRANSACTION. FLORIDA LAW REQUIRES THAT THE BROKER MUST HOLD THIS INFORMATION CONFIDENTIAL AND MAY NOT USE SUCH INFORMATION TO THE DETRIMENT OF THE OTHER PARTY.

____________________________
Signature Date

____________________________
Signature Date

Record Keeping

A broker is required to keep and make available to the department such books and records as will enable the department to determine if such a broker is in compliance with Florida Real Estate Statutes. Each broker shall preserve one legible copy of all books, accounts, and records, including disclosure documents for at least 5 years from the date of the document. Documents must be kept for two years after any legal proceedings. Duly authorized agents and employees of the department shall have the power to inspect and audit in a lawful manner at all reasonable hours at any brokerage office.

Terminating a Brokerage Relationship

Agency is terminated when:

  • The fulfillment of the purpose of the agency is completed (the transaction is completed).
  • The time limit has expired as stated in the agreement. (The listing agreement expires or a buyer’s agreement expires.)
  • Breach or cancellation by one of the parties is given: renunciation by the broker (“I quit”) or revocation by the principal (“You’re fired”).
  • Mutual consent is given. (Both agree that it is mutually acceptable that it is in the best interest of all the parties to terminate the agreement.)
  • Death or incapacitation of either party occurs. (Seller or broker dies.)
  • Destruction of the property or a change in the property is caused by outside forces. (A change in zoning or condemnation etc.)
  • Revocation by the Principal or Customer
  • The bankruptcy of either party or foreclosure of the property occurs
Summary

The Brokerage Disclosure Act makes it very clear that brokers and their sales associates must make it known who the agents represent in the residential transaction. The choices are Nonrepresentation, Single Agency Relationship or Transaction broker. These must be clearly delineated at First Contact.

Residential sales are defined as the sale of improved residential property of four units or fewer, the sale of unimproved residential property intended for use of four units or fewer, or the sale of agricultural property of 10 acres of less.

Disclosure requirements do not apply to:

  • Nonresidential transactions;
  • The rental or leasing of real property, unless an option to purchase all or a portion of the property improved with four or fewer residential units is given;
  • Auctions;
  • Appraisals;
  • Dispositions of any interest in business enterprises or business opportunities, except for property with four or fewer residential units.

First Contact means the beginning of the initial meeting or communication between, a licensee and a seller or buyer except in situations where the licensee knows that the potential buyer or seller is represented by a single agent or transaction broker. It does not mean such things as open house encounters where basic facts are given or casual unplanned contacts such as the grocery, etc.

The duties of the broker or sales associate are clear with each type of representation.

For example, the duties as defined under Nonrepresentation are:

Deal with the customer honestly and fairly.
Disclose all known facts that materially affect the value of property which are not readily observable to the buyer.
Account for all funds entrusted to the licensee.
Single agency representation represents either a buyer or seller but not both. The person being represented is called the principal. Duties include:

Deal honestly and fairly.
Be loyal.
Maintain confidentiality.
Maintain obedience to the principal’s instruction unless in violation of law.
Provide full disclosure to all parties.
Account for all funds entrusted to the broker.
Provide skill, due care, and diligence in the transaction.
Present all offers in a timely manner.
Disclose all known facts that materially affect the value of residential real property that are not readily observable.
Provide the single-agent disclosure before, or at the time of, entering a listing agreement, or an agreement for representation, at the time of or before showing a property, whichever occurs first.
Provide the required information on the required format. (See Exhibit 10.2.)
A transaction broker simply puts the transaction together and provides limited representation and limited confidentiality to both parties.

Duties include:

1. Dealing honestly and fairly

2. Accounting for all funds

3. Using skill, care, and diligence in the transaction

4. Disclosing all known facts that materially affect the value of residential real property and are not readily observable

5. Presenting all offers and counteroffers in a timely manner, unless a party has previously directed the licensee otherwise in writing

6. Limited Confidentiality: Unless waived in writing by a party, this limited confidentiality will prevent disclosure that the seller will accept a price less than the listing price or that the buyer will pay a price greater than the price contained in an offer. Limited confidentiality also prohibits disclosure of the motivation of any party for selling or buying property, that a seller or buyer will agree to financing terms other than those offered, or any other information requested by a party to remain confidential.

7. Any additional duties that are mutually agreed upon with a party

From time to time, a broker or a sales associate may wish to change from a Single Agency to a Transaction Broker Agency. This can be done at any time in the transaction, but all parties must be informed and give consent before there is a change in the relationship.

To make the transition, he must use the Transition format in the correct form. In any real estate transaction other than a residential sale where the buyer and seller have assets of $1 million or more, the broker may honor the request of the parties and designate a sales associate to act as a single agent in the transaction. Both buyer and seller have to sign a disclosure stating that the broker can use this designated sales associate form of representation. Careful records must be kept of all disclosure documents that are available to the Department during regular business hours for at least 5 years from the date of the document and, if in a legal procedure, for two years after the legal procedure is complete.

Vocabulary List:  agent, customer, designated salesperson, dual agent, fiduciary, first contact, limited representation, non-representation, principal, residential sale, single agent, a transaction broker

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