This is Joe from PrepAgent and today we are going to talk about the basic principles of an agency relationship. 

This could be the most important video of your life! 

Well maybe not, but it will help you pass the exam, so let’s go!

An agent is a person who has been legally empowered to act on behalf of another person or entity. This is not the same as having power of attorney, where one person has the power to act as another person for that one act.

Real estate licensees often act on someone else’s behalf in real estate transactions. They are an agent acting on behalf of a “client” or “principal”, so it’s important to understand the Law of Agency that defines the rights, duties, and responsibilities of all legal parties.

Once an agency relationship has been created, there are some fundamental responsibilities that the agent must legally follow. If an agent violates one of these duties or doesn’t perform them as required, they can be held liable. And in real estate, being held liable usually involves lawyers. Yuck, I think I would rather get a root canal. So pay attention!

To help you avoid the lawyers, judges, and nasty papers being delivered to your door, remember these fundamental responsibilities using the acronym OLDCAR:

O – Obedience
L – Loyalty 
D – Disclosure
C – Confidentiality
A – Accounting
R – Reasonable Care

Obedience

Agents must obey the client’s lawful instructions. Let's say you're an agent representing a seller who has received two offers. The first offer is much better than the second, but the seller instructs you to accept the second offer because the person who made the first offer did not go to prom with the seller when they were in high school 20 years ago. You may feel that the seller is being ridiculous and petty, but as an agent, it is your responsibility to obey the instructions of your client. Later, you can tell the offeror they should have given the kid with braces a chance.

That’s not to say you have to follow every instruction! For example, if a seller refuses to consider an offer based on reasons that violate fair housing laws, such as race, you should not, and legally cannot follow those instructions.

Loyalty

When it comes to the real estate transaction, agents must put their client’s best interests ahead of anyone else’s, including their own. Do what is best for the clients, not the commission checks.

For example as a buyer’s agent, you should never give preference to any property because of a bonus. It doesn’t matter if the bonus is money or a cookie- even if it is one of those awesome thin mint Girl Scout Cookies, so good! If you think the property is a good fit for the buyer, go ahead and show the property- but the duty of loyalty requires you to tell the buyer about the bonus before writing up a purchase offer. And if your buyer is good with it, you are good to go.

Disclosure

Agents must disclose any information they receive that could benefit the client’s position in a negotiation. For example, if you represent a buyer and you know the seller has a pending offer on another house, it’s your duty to disclose that information to your client.

You must also disclose any material facts, anything that might cause the buyer to change their actions regarding the purchase. If you’re doing a walkthrough and notice a hole in the front porch, make sure to let your client knows about it. 

Confidentiality

Agents should never disclose any information learned about their clients. It does not matter if it has to do with their business, finances, personal affairs, or their reason for doing the deal. The fiduciary duty of confidentiality lasts forever, it does not just end when the deal is done. For example, if you know your client lost their job and is selling because of their financial situation, that information goes with you to the grave! Unless, of course, a court instructs you to disclose certain items that they deem legally necessary. 

Accounting

Agents are responsible for accurate accounting of all money and documentation associated with a transaction. This includes accurate record-keeping. Boo math!

Reasonable Care

Agents are expected to have a certain level of knowledge and to be able to advise and guide clients through a process without harm. Licensed real estate professionals are legally held to a standard that can be hard to pin down, which is why agents should be smart when it comes to reasonable care.

For example, as a real estate agent, your clients will expect you to knowledgeably advise them on prices, inspections, negotiations, repairs, and many other facets of a transaction. If questions come up that you don’t know, you’re expected to advise them on how to obtain the information they seek. Be careful not to offer advice or services for which you are not qualified just to please your clients. The old expression “stay in your lane” applies here. 

Using our earlier example of the hole in the patio, you should not offer advice on what causes patio holes and how to replace the patio. Instead, you should advise the client to listen to a certified inspector. Just like you, they had to take an annoying test so let them do their thing.

Well, that’s it for now. Remember the acronym OLD CAR, which stands for obedience, loyalty, disclosure, confidentiality, accounting, and reasonable care and you will do great on your real estate exam